A Better Way to Pay for Railways
|May 29, 2003||Posted by Staff under Archive, Progress Report, The Progress Report|
Funding Mass Transit Fairly
A Better Way to Pay for Railways?
We have claimed that transportation projects should be funded from the site value windfalls that they create; in this way, worthwhile projects will not lead to increased taxes or fees. Here is a different idea, in a new editorial from our friends at the New Economics Foundation.
Almost exactly 80 years ago, two of the great American industrialists of the age – Henry Ford and Thomas Edison – held a press conference in Alabama to put forward a new way of paying for a major dam scheme.
They suggested that for major public works like that, the government should abandon their usual practice of borrowing the money from the banks or private sector, and leave future generations with considerable burden of interest repayments. Instead the Federal Reserve – the rough equivalent of the Bank of England – should create the money itself, interest free.
It would then be lent to the project without interest, and when it was eventually paid pack, the money would be removed from circulation.
It never happened like that, and Ford and Edison went their own separate ways. But with the looming problem of Railtrack, and how we are going to pay for the enormous sums that are going to be required to rescue Britain’s railways, it might be worth looking at the idea again.
Traditional economics rejects the idea of ‘printing money’ because it causes inflation – and it does. But given that the money has to be created by somebody, then retiring it at the end of the loan, and not saddling it with built-in interest that has to be repaid, seems rather less inflationary than getting the banks to create it in the normally accepted way of lending it into existence.
A similar idea for public works was put before the US Congress in 1999, but cut across so many vested interests that it hasn’t seen the light of day.
The public-private partnership proposed by the government to finance the upgrading of the London Underground will provide something around 35 per cent profit to the private sector investors – a considerable sum that won’t be going into the tube. As Bob Kiley says, this is “squandering money at an unparalleled pace”.
As James Robertson showed in his New Economics Foundation pamphlet Creating New Money last year, when banks create money they do so out of nothing – limited only slightly by reserve requirements – and they do so at considerable profit.
There must be a better way to finance the capital improvements we all need than funnelling profits into the pockets of private investors. Shouldn’t we at least be debating the alternative – that the government creates the money itself, then pays it off when the work is done?
The process by which banks create money, says John Kenneth Galbraith, is breathtakingly simple. Maybe it needs occasionally to be simpler still.
For more information, visit http://www.neweconomics.org
While the government prints money, idle land speculators would collect huge windfalls from public transit projects. Sounds like a more complete proposal is needed. What’s your opinion on the best way to fund transportation? Tell your views to The Progress Report!