President Obama came to power on a wave of hope and with every possibility apparently available to him. Now he has only a year left of his presidency, and although he has done a few great things his administration has failed to re-establish the USA on the basis of the Rooseveltian economic understandings which once made America pre-eminently great.

On 12 December 2012 I was mistaken enough to hope that a letter to Obama might improve the future of the world. Here is the text of that letter:

“Dear President

The Current International and Economic Situation

What Your Administration Can Do About It

1 Introduction

I really need to meet you and to speak with you. The developing political and economic situation is increasingly critical. I know you are very busy and hope that this letter gets through your filtering system, because the security of the USA and the safety of the western and westernised world is at stake and at risk.

2 Background

For the last 41 years I have intensively studied how very high economic growth was brought about in the three historically important “miracle” economies of FDR’s USA (1938–44, average economic growth rate 12.2%), Shimomura’s Japan 1946–75 (the years when Japan grew rapidly to become a major industrial power), and Deng Xiao-P’ing’s China from the mid-1970s to the present day (when China grew very rapidly and is now at the gate of becoming the world’s major economic and military power).

3 The USA 1938–44

When John Kenneth Galbraith advised Franklin Delano Roosevelt and his team about how to grow the US economy very rapidly using the insights of John Maynard Keynes, the future of the world was at stake. Two of Keynes’s observations were crucial in that advice.

The first was that investment credit and real investments could precede the returns and the growth that justified them, and

The second was that “….whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital.”

JM Keynes, The General Theory of Employment, Interest and Money Book 6, Chapter 24, Section 2, p.376.

These two propositions lie at the root of the theory and practice of investment credit economics.

Galbraith did not attempt to educate the majority of economists on how high-growth results were produced. The shared objective of FDR and Galbraith was to gain the growth necessary to produce the armaments and munitions required for the Allies to to win the Second World War, and that objective was certainly achieved. [(See http://londonprogressivejournal.com/article/view/1507/fdrs-american-economic-miracle-or-the-first-economic-bomb-the-usa-from-to-part.]

4 Japan 1946–75

When Mr (and later Dr) Osamu Shimomura visited the USA in 1946 (probably on the postwar American-Japanese Businessman Exchange Programme) to research how the USA had outmatched the rest of the world, his objective was to acquire an understanding about how the USA had done that so that he could gain an advantage for Japan. Mr Shimomura became involved as one of the authors of Japan’s first three “Income-Doubling Plans” which, from 1946 to 1961, grew Japan out of war devastation into a prosperous industrial economy. Shimomura succeeded in his objectives.

5 China 1975-Now

After the Nixon-inspired Chinese-Japanese rapprochement of 29 September 1972, when diplomatic relations between China and Japan were re-established and normalised, delegation after delegation of Chinese visitors made their way to Tokyo. These visitors had no intention of improving the economic education of the rest of the world. Their focused attention was upon understanding the growth mechanisms by which Japan had become industrially great, in order to replicate these systems within China and to produce a high-growth, prosperous, industrially and militarily great China. That situation is now coming about.

6 The key facts about investment credit economics

Investment credit economics is the creation of credit by the central bank by rediscounting the long-term commercial and industrial loans to private industry in order to increase bank liquidity and commercial and industrial borrowing and enable a very high rate of national capital investment and economic growth. There are three key aspects of investment credit economics:

First, there must be the political will and economic understanding at the highest level of government to introduce investment credit economics, involving not only the creation of credit at the central bank but also its canalisation through the entire banking system to private industry and commerce in all regions of the country.

Second, the final use of that created credit must be private capital investment. Because there is always a delay between the availability of investable funds and the new plant and equipment investments, investment credit economies tend to have private companies with high liquidity, which engenders confidence; because there is often a high surge of demand for the high quality finished goods produced by private companies in investment credit economies, many goods are produced in high volumes prior to sale, and there are often long supply lines from the domestic producer to the foreign consumer, so there is a greater investment in working capital and finished goods in transit; and because there is a continual updating of plant and machinery, and the continual need for staff retraining in the newer production technologies, employment and prosperity increases in the investment credit economies.

Third, if the interest rate on private debt is managed by the central bank to be equal (in normal circumstances) to the best estimate of the slightly lagged inflation rate, then borrowed money becomes a counterpart of real resources. (The inflation rate in use has been the factory-gate wholesale price of finished goods.) That policy has been (I think) the stabiliser in the credit creation system, because the created credit at the central bank is an asset not owned by any foreign power.

7 The current position

Much that has been achieved by the West during the last 500 years is now in peril. I have tried to act through the normal local political channels by writing three times to David Cameron, the Prime Minister of the United Kingdom, and I enclose my most recent (26 November 2011) letter to him along with its attachments (which include a letter to you dated 2 November 2011). To quote two key excepts from the letter to Cameron:

“The Upside of Investment Credit Economics

“This economic understanding is the diamond that is bigger than the Ritz, the route to great economic growth and prosperity for the British people. It also provides the foundation for the improved economic performance of all the countries with an Anglo-Saxon inheritance — the USA, Canada, Australia, New Zealand, and South Africa and possibly others — and it is an economic understanding which provides the path to solve the current problems of the Eurozone and United Europe through more rapid growth.”

and

“Investment credit economics may also enable an adequate response to the Chinese challenge. Obama has recently announced that the USA will continue to pursue Western interests in the Pacific through the maintenance of the [Pacific] Fleet and other seapower in that area. Given the current growth trajectories of the USA and China, within a decade or so the US would not continue to possess the required economic capability (that is, would not be able to afford) to match China in the absence of investment credit economics.

“For the very first time, an understanding of the economic driver in the power transition cycles (that is, understanding of the economics of investment credit creation) creates the possibility of a conscious political manipulation of the historical forces of power transition. The six hegemonic cycles of the last five hundred years — Portugal (1517–1580), Netherlands (1609 -1713) , Great Britain 1 (1714–1815), Great Britain 2 (1816–1918), Great Britain 3 (1919–1945), and the United States (1945–1992) — could be succeeded by a seventh hegemon, a preponderant power composed of a federation of rapidly developing democratic states, initially western but ultimately open to all democratic states. That development could ensure a peaceful and more prosperous world for the foreseeable future. Such a development would be in everyone’s interests, even China’s.”

The rise of China might not result in a world war between the USA and China, but calculations about the balance of war probability based upon the drift of current events indicates that war is likely, unless effective action is taken by you soon. And

“A peaceful resolution to the challenge of China is particularly important because

“….no rising state thus far has accepted the prevailing international order and peacefully integrated itself into it. Given the theoretical arguments elucidated above, this is not at all surprising, since accepting the extant arrangements of governance would imply that the rising state has has chosen not to reconfigure the the existing order to suit its own interests. It is theoretically possible that the existing order perfectly suits the interests of the rising state and hence demands no restructuring, but it is highly unlikely that such a condition would ever obtain in practice. This is because the international order usually reflects, however imperfectly, the preferences of the existing hegemon and, in the competitive world of egoist international politics, it is highly unlikely that what suits the existing hegemon also suits the rising challenger just as well. Not surprising, then, that every major challenger so far — Spain, France, Germany, Japan and the United States — has mounted challenges in different ways to the established order when they were in their ascending phase…*

Page 224, Interpreting China’s Grand Strategy: past, present and future (Project Air Force RAND) published by RAND, 2000, by Michael G Swaine and Ashley J Tellis.

“This new economic understanding is indispensable to achieving future peace. The democratic Western nations need something more than the existing military alliances because the contender has never paid due attention to alliances but only compares its rising national power and capability with that of the previous hegemonic leader. All of this is a kind of shorthand about what has actually happened and may recur. Reality is always more complex than than any brief summary of real events, however well considered.”

I have previously (in my 26 November 2011 letter) offered the Prime Minister of the United Kingdom the opportunity of doing as Roosevelt did, and of effectively becoming the saviour of the world and the West. Unfortunately Cameron can’t fill the world-changing role required, but you obviously can and could.

I would like to offer you and your administration the same deal as I offered Cameron.

In other words, I would like to offer you

“- the reversal of USA manufacturing decline and the production of high tech goods in a resurgent American manufacturing sector

- the economic technology to produce a similar increase in the economic capabilities of the UK’s allies

- an increased probability of avoiding the third world war due to effective political action, and

- your choice about how best to roll out this new technology.”

Conclusion

This world-changing choice is now yours. Please review the contents of the letter previously sent to you on 2 November 2011 about this fresh understanding of investment credit economics, which letter was attached to my letter to Cameron.

With the best regards and with all good wishes for your family and country

And wishing you the compliments of the season

I am

Yours aye

George Tait Edwards MBE”

As Ezra Pound’s translation of the Exile’s Letter comes to an end

“What is the use of talking! And there is no end of talking——————— there is no end of things in the heart.” So I transmit this article up into the winds of the internet and send it on its way to whatever eyes may see it, scatttering it for thousands of miles, thinking.

© George Tait Edwards 2015

Note: George Tait Edwards has published a first sequence of collected articles in a book about “Shimomuran Economics” at http://www.lulu.com/shop/george-tait-edwards/shimomuran-economics/paperback/product-21688864.html and much else elsewhere during the last four decades. Also see “The Rough Guide to Shimomuran Economics” at https://medium.com/@georgetaitedwards/the-rough-guide-to-shimomuran-economics-e9dca42c6808 and the cover summary and prologue of my sixth book at https://medium.com/@georgetaitedwards/lucky-bastards-of-the-20th-century-8bd352881b6b and consider the purchase of that sixth book which is called “Lucky Bastards of the 20th Century- The Story of the Economic Bomb” which can be found at http://www.lulu.com/shop/george-tait-edwards/lucky-bastards-of-the-20th-century/paperback/product-21913362.html.