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.
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9 Comments
Keynes did consider when mobilising these resources avoiding the creation of inflation, asset and waste bubbles. Also when promoting arguments like this we do need to be careful we don’t destroy the ability to make the political argument, pay more tax to fund this worthwhile investment. We should definetely focus on the point about bank lending and how under our current economic set-up, far too much “created” money is channeled into existing asset inflation though.
The implication is that half the Bank of England money is used towards maintaining the establishment and the status quo NOT the growth and development of the country.
Thank you for an excellent, whole society improving article!
In reality ,the “National Debt” is not a genuine/conventional debt but an essential governmental savings and financial securityb scheme as shown below.
https://www.taxresearch.org.uk/Blog/2026/03/08/the-national-debt-need-never-be-paid-off/
The emphasis put on this mendacious myth is a deceit to further enable Neoliberals to exploit everyone’s society for their personal benefit, as is the mendacious myth that a domestic econonmy is like the national economy.
It cannot be because households cannot create money,
https://www.taxresearch.org.uk/Blog/2025/11/23/why-the-government-is-nothing-like-a-household/
It’s well past time for a reintroduction of Keynesian Economics This isn’t to say that no-one else has had a contribution to make since Keynes but he must surely be regarded as the towering figure of the 20th century.
I’ve always taken Keynes to mean that the “anything we can do” comment, made in the early stages of WW2, was made in answer to those who were concerned that the Government was going to run out of money and the war couldn’t be afforded. The National Debt at the start of WW2 was even larger than it is now at 135% of GDP. Lib Dems on this blog are saying pretty much the same thing as was said then even though we are a lot wealthier in absolute terms and the GDP is 100% of GDP.
The comment doesn’t mean that we shouldn’t have taxes though. They we set at a high level during WW2, but rather that they should be set to regulate aggregate demand and control inflation. Somehow the mainstream seems to think it now knows better than Keynes and the problem of inflation control can be safely subcontracted to the central bank via monetarist economics.
The crisis of 2008 showed that this approach isn’t working and we’ve had trouble with our economy ever since.
A couple of comments:
“… the government spends before it taxes. It does not tax and spend…..”
This is a comment beloved of the MMT fraternity. This misses out a step which isn’t omitted from MM Theory. Often people misunderstand what MMT means. The first stage is the govt demand for taxes to be paid in the Govt’s currency of issue. If we didn’t have these demands the government couldn’t spend anything because its issued currency wouldn’t be worth anything. We can think of the £, and all other fiat currencies, as tax vouchers.
“……Commercial banks create money when they make loans, and money is destroyed when loans are repaid.”
Commercial money isn’t the same as government/central bank money. Government puts money into the economy mainly by spending. Commercial banks by lending. So there’s no requirement for us to repay the government for the £5 notes etc that we have in our wallets.
Both types can create too much inflation if they are issued to excess but bank issued money can also create longer term problems because there’s always the onus of the liability of bank issued money. This has to be repaid. If there is a drop in asset prices we have a 2008 type problem. A high level of private debt turned into a high level of bad private debt and caused a crash.
Most observers tend to be fixated on levels of government debt and ignore the high levels of private debt.
Peter Martin I don’t see that MMT here isn’t telling us anything that we didn’t know already, borrowing/creating money and investing it very well in a dynamic way produces good outcomes, we already knew that I think.
Keynes was very clear that government intervention was required, using monetary or fiscal policy, if Aggregate Demand was less than Aggregate Supply.
Do we believe that Aggregate Demand is currently less than Aggregate Supply and therefore such intervention is necessary? If not, Keynes would caution that boosting the economy when there was no demand deficiency would just lead to inflation.
Anyone who is interested in Keynesian economics might want to follow Paul Krugman who’s well respected in economic circles.
I noticed that he quoted this simple equation in the link below.
Trade balance + Net inflows of capital = 0
So it follows that to make our trade balance, all we need to do is lower interest rates sufficiently to stop the inflow of capital. Then tighten fiscal policy to compensate for the loosening of monetary policy. This would be good news for all those who are concerned that our interest bill is too high. Apologies, Abrial Jerram, if I’m telling you something you already know.
Who said economics was complicated?
There might be a a downside though!
https://paulkrugman.substack.com/p/from-exorbitant-privilege-to-invincible
I love this quote from The New Deal. For a publc utility like water it is especially true. To give shareholders dividends the company must first show it respects social and environmental concerns,