Economics, a plain language guide




Roads, bridges, piped water, electricity, telecommunications,
these and many more constitute vital elements of a nation’s infrastructure.
But outweighing them all in importance is
a properly functioning monetary system.
Our present economic/financial system doesn’t work.
It is open to, and frequently subjected to extreme abuse,
and fails to provide support for industry and development.
It requires some fundamental reforms
if it is to deliver the prosperity of which it is capable.

The formula for national prosperity is very simple:


If 5% of the working population is unemployed, 5% of productive capacity is wasted. Total production, output, purchasing power and prosperity will all be reduced by 5%. That is basic mathematics.If everybody is working, but working inefficiently and unproductively, using old machinery with poor organization, poor allocation of resources, and enforced idleness due to lack of components or spares, then again, overall production, and thus output and prosperity, will be reduced. We become prosperous, not just by working, but by working efficiently, constantly seeking ways to produce more output for the same or less input of labour, constantly seeking to maximize productivity.

Unemployment in itself reduces potential prosperity. It also has a depressing effect on productivity. Productivity, producing more and better goods and services tomorrow with less work than it took yesterday, inevitably involves reducing the work content thus putting people out of work. In times of full employment this is no problem as there are always alternative jobs. But when there is permanent unemployment, employees will oppose productivity increases for fear of becoming unemployed. Productivity creates prosperity. Opposition to productivity, is opposition to prosperity.

A prosperous nation requires full employment and continuing maximization of productivity. Full employment removes objections to labour-shedding productivity increases, and also encourages automation and more efficient use of labour.

The Big Crash starting 2008 brought with it a widespread awareness of the extent to which banks have bent over backwards to invent ever more complex gambling devices without apparently any thought that gamblers might one day lose their (or our) shirts, awareness, too, of their gross misuse of resources at their disposal and scant regard for their status as guardians of the nation’s monetary system. The complexity of the risks they were increasingly taking and their subsequent downfall is the major element in our current financial troubles.

Solutions have been proposed. In 2009 the hot topic was the separation of banking functions. Ruth Sutherland summarized the idea in The Observer’s Business & Media section dated 22.03.09:

“It doesn’t take the biggest brain on the planet to divine that casinos and savings banks are very different beasts. That is why there is a growing clamour from luminaries including Bank of England governor Mervyn King and former Chancellor Nigel Lawson to look at introducing Glass-Steagall type rules. Glass-Steagall was the 1930s regulation in the US that separated banks’ function as utilities from their gambling activities; it came out of their belief that banks’ speculation on the stock markets with their savers’ money helped cause the crash of 1929 and the Great Depression. Its repeal in 1999 by the Clinton administration was driven by powerful banking interests, a textbook case of politicians bowing to the finance industry, which had conducted a $300m lobbying assault.”

Banks’ gambling activities would then be conducted as separate, ring-fenced entities, selling properly described and monitored investment funds into which purchasers would invest knowing the precise activities undertaken and relevant risk/reward ratios. Indeed, Britain’s Investment Fund industry is already highly regulated and responsibly marketed. The problem arises when complex risks and speculation are undertaken clandestinely, masquerading as simple deposit-taking banking.

The separation of banking functions coupled with much tighter regulation are obvious remedies against future banking collapse, as is an overall limit on personal credit-card debt and tighter mortgage regulation.

Traditional banking practice requires pre-existing assets as security, and loans carry no long-term commitment.

Development Banking avoids these two limitations of traditional banking by securing the loan the industrial or commercial project itself thoroughly researched and costed, rather than on outside assets alone, and by making a long-term commitment based on an intimate involvement with the business or project in which it is invested. Involvement in the business ensures longterm commitment.

This facilitates the creation of new business and new jobs, as well as providing secure finance with which existing business can maximize its quality and productivity. Local infrastructure can also be financed. By setting up Development Banks to operate at regional level, focusing on regional and local needs, the benefits can be spread widely and uniformly, avoiding the usual pockets of non- or under-development.

Despite the clear disadvantages of unemployment, and the desirability of full productive use of all economic resources, the ability to expand an economy to full capacity cannot presently be realized, for as the economy expands to near-full employment, the danger of inflation causes the Central Bank to put the brakes on.

The problem is that our money has no defined value. Back in the simple craft market, all participants had a fair idea of what each product cost in terms of labour, skill and materials. But who today would know the constituent cost of a jacket or a kitchen mixer, a computer or high definition television set?

The result is that we’re back to haggling, but on a national scale. We haggle over wages and prices. Money only has real meaning in terms of what you earn (wages), and what you can buy with what you earn (prices). But both wages and prices are open to continuing dispute and lack any form of definition or stability. None of our national currencies has any stable, clearly defined value, and all are subject to greed-motivated upward movement known as inflation. This in turn prevents economic expansion to full employment, sentencing the world’s economies to the waste and human distress of substantial and permanent unemployment.

Download the book in pdf format:
The Economics of Prosperity

Banks and Credit Creation A Text-Book Explanation

A Swiss Bank Scandal: MIS-Using the Nation’s Credit Flow 1998-2008


  • Unemployment and Economic Development in the European Union
    Permanent full employment IS possible.
  • Arbeitslosigkeit und Wirtschaftsentwicklung in der Europäischen Gemeinschaft
    Bleibende Vollbeschäftigung ist ja möglich.
  • Le Développement Economique en Europe
    Du Travail pour Tout le Monde: Oui, c’est possible
  • Development Credit and World Poverty
  • Credito de Desarrollo y la Pobreza Mundial

    Enough economics for one day?
    Switch your sound on and click for some light relief
    Henry Crun’s Bank

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