Friday, 14 July 2017

Friedrich List, railways, and MMT

The creator of the German railways, Friedrich List, spent 12 years in the USA, where he was able to experience the American System of Political Economy. List had to face the same aversion we see today in the mainstream and collective conscious - namely, 'how are you going to fund this?' - 'where will the money come from?' In response List wrote a treatise, ``On a Railway System in Saxony as the Foundation of a General German Railway System,'' which appeared in the year 1833:

"People say that we do not have, here in our region, any such an amount of capital, not so much ready money for undertaking such a gigantic national work.... As for the financial point, we need not fear any further objection from sensible people, once it is pointed out that the capital so used bears the highest interest rate of return in the country. With that as a premise, no expense can be found that is too great. Furthermore, Saxony, if it is serious about the undertaking, will have at its disposal more than a hundred times more capital and cash than required. That North America possesses more capital and more cash is not even true; most of the settling of accounts there is done with paper money, which we can create just as well here in Saxony. Here an amount of 4 to 6 million bank-issued bills of exchange make up one-third of the currency in circulation, while in North America, there are two and three times as many of these notes in circulation than ready cash.''

Right off the bat, List nails it by saying that the object of credit is to be an instrument for settlement payments - and that the success of the USA lies in recognizing this feature. Further on he makes the distinction between commodities (gold and silver) and money/credit/ (aka debt) by saying...

"People will probably ask me, where will Bavaria get the money to complete such giant works [railways]? I answer, that I have not yet seen any silver or gold in any of the canals or railways. To build them we use only consumer goods, steel, stones, wood, manpower, the power of animals. But is there not a surplus of all this in Bavaria? To the extent that we transform this surplus into canals and railways, which are not yet in existence, we create permanent and enduring value, we create an instrument which doubles the productive power of the entire nation. The money, however, does not leave the country, it only settles accounts.''

List was the leading promoter of railways in Germany. In 1841 he summed up the advantages of that technology.

-It is a means of national defence: it facilitates the concentration, distribution and direction of the army. 
-It is a means to the improvement of the culture of the nation.... It brings talent, knowledge and skill of every kind readily to market. 
-It secures the community against dearth and famine, and against excessive fluctuation in the prices of the necessaries of life. 
-It promotes the spirit of the nation, as it has a tendency to destroy the Philistine spirit arising from isolation and provincial prejudice and vanity. It binds nations by ligaments, and promotes an interchange of food and of commodities, thus making it feel to be a unit. The iron rails become a nerve system, which, on the one hand, strengthens public opinion, and, on the other hand, strengthens the power of the state for police and governmental purposes.
If List were alive today, he would endorse MMT.

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