England’s Difficulty and Ireland’s Opportunity

As the saying attributed to the Emancipator Daniel O’Connell goes, “England’s difficulty is Ireland’s opportunity.” In this case, however, England’s difficulty is also England’s opportunity . . . as well as everyone else’s.
“Brexit” has caused widespread concern in both England and Ireland, and people still aren’t certain what is going to happen months after the decision.

The consequences, however, are not necessarily negative. Brexit can be a good thing for everyone.

Admittedly, it’s pretty grim right now. The falling Pound makes Irish exports to Great Britain more expensive for the British — and Great Britain accounts for 40% of Ireland’s exports. Even a relatively small drop in the value of the Pound against the Euro is magnified all out of proportion.

The situation is exacerbated by the fact that Ireland wants to decrease debt. Its target is 45% of economic output, much lower than the EU ceiling of 60%. Under Keynesian assumptions, Ireland will have to increase its reliance on infusions of foreign financial capital as domestic financial capital decreases as debt is paid down.

Thus, under Keynesian assumptions, fiscal responsibility translates into financial irresponsibility. How can Ireland grow economically when it cannot guarantee that there will be sufficient infusions of foreign financial capital?
It can’t. The experts are predicting slower rates of growth. Yet the answer is right in front of them.

First, what is financial capital?

Money. (And credit; money and credit are essentially the same thing, money being the most general form of credit.)
And what is money? Anything that can be accepted in settlement of a debt.
To explain, the first principle of economics, stated by Adam Smith in The Wealth of Nations, is “Consumption is the sole end and purpose of all production.”

This gives us “Say’s Law of Markets,” which is, the only way to consume is either produce it yourself for yourself, or to trade to others for they have produced that you want to consume. Everything else being equal, demand generates its own supply, and supply its own demand.

The medium through which you exchange what you produce for what others produce is called “money.” Money is therefore a contract; all money is a contract, just as (in a sense) all contracts are money.
If you can produce, then, financing should be no problem. As long as you have a customer, you can enter into a contract to exchange productions. Commercial and central banks were invented to make it easier for people to exchange their respective productions.

That’s why it’s a bad idea to back money with government debt. Governments produce nothing. Government debt is a contract that promises to deliver what somebody else produces. The assumption is that the government will be able to tax people and take part of what they produce to redeem its promise.

It would be better to have banks and businesses “create money” backed by contracts drawn on existing and future marketable goods and services instead of government debt.

It would be better to have banks and businesses “create money” backed by contracts drawn on existing and future marketable goods and services instead of government debt. That way there would always be enough money to carry out transactions, including investment in economic growth, but without one penny of government debt.

If every country in the world created money this way, all money would have a stable value and be backed with private sector assets instead of government debt.

Given stable and asset-backed currencies, there would be no need to worry about one currency falling against another and conferring advantages or disadvantages on either trading partner. People could also stop worrying about globalization, job movement, labor redundancy in the face of advancing technology, and so on.

Michael D. Greaney is Director of Research at the Centre for Economic and Social Justice. He published recently “So Much Generosity” and “Political Animal”.