A different economic model: 1 – money creation, ‘a long-neglected question’
George Monbiot asks: “Is it not time to think again? . . . To consider a different economic model, which does not demand endless pain while generating repeated crises?”
Thomas Attwood would have rejoiced to hear the news that last week, for the first time in 170 years, parliament debated one aspect of the problem: the creation of money. Instead of the insults and boorish behaviour Attwood encountered when raising such issues on the floor of the house, causing him to describe them as being “as ignorant as asses and obstinate as hogs” (see James Robertson), this was a most civilised debate. Monbiot continued:
Few people know that 97% of our money supply is created not by the government (or the central bank) but by commercial banks in the form of the loans they issue. At no point was a democratic decision made to allow banks to do this. So why do we let it happen? This, as Martin Wolf has explained in the Financial Times, “is the source of much of the instability of our economies”.
MP Steve Baker (Wycombe) (Con), opened what the writer considers a fascinating session: “The methods of money production in society today are profoundly corrupting in ways that would matter to everyone if they were clearly understood. The essence of this debate is: who should be allowed to create money, how and at whose risk?”
He was grateful to members from all political parties, including the hon. Members for Clacton (Douglas Carswell) and for Brighton, Pavilion (Caroline Lucas) and the right hon. Member for Oldham West and Royton (Mr Meacher), for their support in securing the debate, continuing:
“One of the most memorable quotes about money and banking is usually attributed to Henry Ford: ‘It is well enough that people of the nation do not understand our banking and monetary system, for if they did I believe there would be a revolution before tomorrow morning’ “.
He then quoted the explanation in the Bank of England article, Money creation in the modern economy, ““Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”
To read the whole transcript, click here.
A brief but very interesting summary of the debate may be seen on the Positive Money website, which referred to the contributions of other stalwarts, including MPs Austin Mitchell and Zac Goldsmith.
As Monbiot said: the parliamentary debate won’t stop the practice, but it represents the opening of a long-neglected question.