This is the kind of economy an independent Scotland must aim for

The role of the new Scottish state will be crucial in shaping our future. With our own central bank, the state can create the new currency by buying the sterling held by Scottish individuals, households, businesses and financial institutions. The Scottish Government will need to spend in order to create the institutions of government and to provide public services. The money will then circulate in the economy to produce more economic activity via a “multiplier” effect.

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It is the government which will be responsible for directing the allocation of money in the economy so that our currency is used for the purpose of producing the things we all need to live well and in harmony with nature. Bank credit will need to be directed where it is needed for productive purposes and to reduce the availability of bank credit for mortgage lending.

Mortgage lending should be provided by the restoration of building societies, which are mutual financial institutions belonging to the depositors who save with them.

The creation of a diverse and decentralised banking system will involve a new regime of banking regulation introduced and enforced by the powers of the state.

Reform of our pension funds will also necessitate new regulations which impose a duty to consider the public interest in how investments are made. Pension funds must be providing productive finance when they invest the savings of citizens. If we establish a National Pension and Investment Fund then the distinction between “members” and the “public” will disappear because everyone will be a member of a large, national mutual fund.

All this means that the state plays the decisive role in shaping the private-sector financial system. But government also plays a decisive role in how money is allocated in the economy and how it circulates in the private sector. It does this by the use of its powers to tax and to borrow in our own currency.

With its own currency, the government can spend whatever is needed to provide public services and infrastructure. It does not need to raise tax to do this, nor does it need to borrow. Tax and borrowing are the tools for allocating how money is used and to control the overall volume of money circulating in the economy.

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Tax removes money from circulation permanently. Borrowing removes it temporarily and it does so because a government which borrows in its own currency is actually providing a safe means for private savings. When people lend to the government they are saving instead of spending and their savings earn interest.

Controlling the volume of money in circulation in the economy is necessary to prevent inflation. But tax and borrowing are also important in the allocation of money in the economy; they work rather like “carrot and stick”. Tax is the “stick”; borrowing is the “carrot”.

Because government does not rely on tax to pay for public spending, taxation can be used to remove money from circulation when it is being used for undesirable purposes and causing harm by, for example, damaging the environment, creating harmful products, creating social inequality, or being used for financial speculation.

On the other hand, government borrowing can be used to allocate money by incentivising savings instead of spending and this removal of money from the economy then provides headroom for the government to spend on national priorities without causing inflation in other sectors of the economy.

The transition to zero carbon will involve a massive re-allocation of resources in the economy. It may well prove necessary to offer government-backed savings to address the risk of inflation in the price of some goods and services, which could become in short supply as a result of re-allocation of our resources.

In the UK at present we are witnessing food and energy price inflation – underlying this is the long-term failure by UK governments to allocate resources to build resilience into food and energy supply. Let us take heed.

Every economy has limited resources so it is vital that the allocation of money supports national priorities such as food security, energy production, housing, health, education, construction. Our national priorities should be framed by an industrial strategy.

What we have described here is a state directed, mixed economy in which the state plays a leading role, working together with civil society to deliver the prosperity of the nation while living within planetary limits.

Independence will free the Scottish people and empower us to choose our own future – and our own priorities.