Modern German history professor and Scotland in Union member doesn't understand economics

Jill Stephenson, a retired professor of modern German history, claims in the February 1st edition of the Edinburgh Evening News that it wasn’t the Attlee Labour government’s massive public spending increase that resuscitated the post-war UK economy and created the modern welfare state, but the US Marshall Plan that got the UK (and European and Japanese economies) back on their feet. But it was John Maynard Keynes, Clement Attlee’s economic advisor, whose thinking was behind the US Marshall Plan. It’s true that the UK received $2.7 billion from the US but this amount pales in the context of the UK’s overall post-war spending. American aid equalled just one year of UK government spending in the late 1940s.

Ms Stephenson unwittingly undermines her assertion that there is no ‘magic money tree,’ which isn’t magic but exists when a government, like the UK, issues its own currency. When the UK came off the gold standard in 1931 it adopted a fiat currency, meaning the currency is not backed or constrained by a physical commodity such as gold but by the government that issues it. This doesn’t mean the government can spend without any constraints - it can’t. The constraints are the productive capacity of the economy and inflation.

The Attlee government was able to invest heavily in public services and industries and create jobs to revive the post-war economy because productive capacity needed to be rebuilt and inflation wasn’t an issue. Keynes’ insight was that during an economic slump, if a government cuts public spending, the slump only deepens. Rather, it must do what the Attlee government did, and what the UK government is failing to do now - invest in its people, public services and infrastructure.

Ms Stephenson again shows her economic ignorance. Modern Monetary Theory (MMT) simply describes how money works with a fiat currency, which is what the UK has. The pound comes from the government, and nowhere else. The Bank of England, as the UK’s bank, must create the money the government demands. Taxes don’t fund spending but they can be used to control inflation, alter the distribution of wealth and income, and encourage or discourage certain behaviours.  

She probably doesn’t realise that ideas of John Maynard Keynes, the English economist behind the Attlee government’s success, formed the principles on which the US Marshall Plan was based. The Marshall Plan was the UK’s Keynesian policy applied on a wider European scale.

After the war, Europe, like the UK, was broke and its infrastructure destroyed. It needed massive public investment to get it back on its feet. Keynes explained if the US was prepared to prime the pump providing the initial investment to get Europe moving, it would get its money back with a large return and Europe would recover quickly, just as the UK was doing. 

It worked. Europe grew massively as did the US, as one of their main suppliers. The Nordic regions took note and copied the Keynesian approach, which they largely maintain to this day and is why their countries are some of the most prosperous in the world.  

Keynes recognised that in an economic slump, governments shouldn’t cut back on investment, which results in a deeper slump and greater unemployment, but do just the opposite. 

Neoliberal ideology, the belief that markets should be unregulated, the public sector reduced through privatisation and austerity, and wealth transferred from working people to a small number of rentier-capitalists, has supplanted Keynesian economics. It’s why inequality has soared, the economy is stagnant and public services are failing.

The UK is failing, Ms Stephenson, which is why Scotland must leave.