Parliament Debate on Money Creation & Society (Video)

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Steve Baker

Watch the debate “Money Creation & Society” that took place on Thursday 20th November in the House of Commons:

The recording is also available on BBC Parliament.

We’ll have more analysis, a response to the government position and we’ll get highlights posted on Youtube soon.

Transcript

[STARTS]

11.18 am

Steve Baker (Wycombe) (Con): I beg to move,

That this House has considered money creation and society.

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? It is no wonder that it has attracted support from across the political spectrum, although, looking around the Chamber, I think that the Rochester and Strood by-election has perhaps taken its toll. None the less, I am grateful to right hon. and hon. Friends 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 this debate.

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.”

Let us hope we do not have a revolution, as I feel sure we are all conservatives on that issue.

How is it done? The process is so simple that the mind is repelled. It is this:

“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”

I have been told many times that this is ridiculous, even by one employee who had previously worked for the Federal Deposit Insurance Corporation of the United States. The explanation is taken from the Bank of England article, “Money creation in the modern economy”, and it seems to me it is rather hard to dismiss.

Today, while the state maintains a monopoly on the creation of notes and coins in central bank reserves, that monopoly has been diluted to give us a hybrid system because private banks can create claims on money, and those claims are precisely equivalent to notes and coins in their economic function. It is a criminal offence to counterfeit bank notes or coins, but a banking licence is formal permission from the Government to create equivalent money at interest.

There is a wide range of perspectives on whether that is legitimate. The Spanish economist, Jesús Huerta de Soto explains in his book “Money, Bank Credit and Economic Cycles” that it is positively a fraud—a fraud that causes the business cycle. Positive Money, a British campaign group, is campaigning for the complete nationalisation of money production. On the other hand, free banking scholars, George Selgin, Kevin Dowd and others would argue that although the state might define money in terms of a commodity such as gold, banking should be conducted under the ordinary commercial law without legal privileges of any kind. They would allow the issue of claims on money proper, backed by other assets—provided that the issuer bore

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all of the risk. Some want the complete denationalisation of money. Cryptocurrencies are now performing the task of showing us that that is possible.

The argument that banks should not be allowed to create money has an honourable history. The Bank Charter Act 1844 was enacted because banks’ issue of notes in excess of gold was causing economic chaos, particularly through reckless lending and imprudent speculation. I am once again reminded that the only thing we learn from history is that we learn nothing from history.

Thomas Docherty (Dunfermline and West Fife) (Lab): I welcome today’s debate. The hon. Gentleman makes a valid point about learning from history. Does he agree with me that we should look seriously at putting this subject on the curriculum so that young people gain a better understanding of the history of this issue?

Steve Baker: That is absolutely right. It would be wonderful if the history curriculum covered the Bank Charter Act 1844. I would be full of joy about that, but we would of course need to cover economics, too, in order for people to really understand the issue. Since the hon. Gentleman raises the subject, there were ideas at the time of that Act that would be considered idiocy today, while some ideas rejected then are now part of the economic mainstream. Sir Robert Peel spent some considerable time emphasising that the definition of a pound was a specific quantity and quality of gold. The notion that anyone could reject that was considered ridiculous. How times change.

One problem with the Bank Charter Act 1844 was that it failed to recognise that bank deposits were functioning as equivalent to notes, so it did not succeed in its aim. There was a massive controversy at the time between the so-called currency school and the banking school. It appeared that the currency school had won; in fact, in practice, the banks went on to create deposits drawn by cheque and the ideas of the banking school went forward. The idea that one school or the other won should be rejected; the truth is that we have ended up with something of a mess.

We are in a debt crisis of historic proportions because for far too long profit-maximising banks have been lending money into existence as debt with too few effective restraints on their conduct and all the risks of doing so forced on the taxpayer by the power of the state. A blend of legal privilege, private interest and political necessity has created, over the centuries, a system that today lawfully promotes the excesses for which capitalism is so frequently condemned. It is undermining faith in the market economy on which we rely not merely for our prosperity, but for our lives.

Thankfully, the institution of money is a human, social institution and it can be changed. It has been changed and I believe it should be changed further. The timing of today’s debate is serendipitous, with the Prime Minister explaining that the warning lights are flashing on the dashboard of the world economy, and it looks like quantitative easing is going to be stepped up in Europe and Japan, just as it is being ramped out in America—and, of course, it has stopped in the UK. If anything, we are not at the end of a great experiment

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in monetary policy; we are at some mid point of it. The experiment will not be over until all the quantitative easing has been unwound, if it ever is.

We cannot really understand the effect of money production on society without remembering that our society is founded on the division of labour. We have to share the burden of providing for one another, and we must therefore have money as a means of exchange and final payment of debts, and also as a store of value and unit of account. It is through the price system that money allows us to reckon profit and loss, guiding entrepreneurs and investors to allocate resources in the way that best meets the needs of society. That is why every party in the House now accepts the market economy. The question is whether our society is vulnerable to false signals through that price system, and I believe that it is. That is why any flaws in our monetary arrangements feed into the price system and permeate the whole of society. In their own ways, Keynes and Mises—two economists who never particularly agreed with one another—were both able to say that currency debasement was the best way in which to overturn the existing basis of society.

Even before quantitative easing began, we lived in an era of chronic monetary inflation, unprecedented in the industrial age. Between 1991 and 2009, the money supply increased fourfold. It tripled between 1997 and 2010, from £700 billion to £2.2 trillion, and that accelerated into the crisis. It is simply not possible to increase the money supply at such a rate without profound consequences, and they are the consequences that are with us today, but it goes back further. The House of Commons Library and the Office for National Statistics produced a paper tracing consumer price inflation back to 1750. It shows that there was a flat line until about the 20th century, when there was some inflation over the wars, but from 1971 onwards, the value of money collapsed. What had happened? The Bretton Woods agreement had come to an end. The last link to gold had been severed, and that removed one of the most effective restraints on credit expansion. Perhaps in another debate we might consider why.

Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP): Does the hon. Gentleman agree that the end of the gold standard and the increased supply of money enabled business, enterprise and the economy to grow? Once we were no longer tied to the supply of gold, other avenues could be used for the growth of the economy.

Steve Baker: The hon. Gentleman has made an important point, which has pre-empted some of the questions that I intended to raise later in my speech. There is no doubt that the period of our lives has been a time of enormous economic, social and political transformation, but so was the 19th century, and during that century there was a secular decline in prices overall.

The truth is that any reasonable amount of money is adequate if prices are allowed to adjust. We are all aware of the phenomenon whereby the prices of computers, cars, and more or less anything else whose production is not determined by the state become gently lower as productivity increases. That is a rise in real living standards. We want prices to become lower in real terms compared to wages, which is why we argue about living standards.

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Sir William Cash (Stone) (Con): My hon. Friend is making an incredibly important speech. I only wish that more people were here to listen to it. I wonder whether he has read Nicholas Wapshott’s book about Hayek and Keynes, which deals very carefully with the question that he has raised. Does he agree that the unpleasantness of the Weimar republic and the inflationary increase at that time led to the troubles with Germany later on, but that we are now in a new cycle which also needs to be addressed along the lines that he has just been describing?

Steve Baker: I am grateful to my hon. Friend. What he has said emphasises that the subject that is at issue today goes to the heart of the survival of a free civilisation. That is something that Hayek wrote about, and I think it is absolutely true.

If I were allowed props in the Chamber, Mr Speaker, I might wave this 100 trillion Zimbabwe dollar note. You can hold bad politics in your hand: that is the truth of the matter. People try to explain that hyperinflation has never happened just through technocratic error, and that it happens in the context of, for example, extremely high debt levels and the inability of politicians to constrain them. In what circumstances do we find ourselves today, when we are still borrowing broadly triple what Labour was borrowing?

Ann McKechin (Glasgow North) (Lab): I am interested to hear what the hon. Gentleman is saying. He will be aware that the balance between wages and capital has shifted significantly in favour of capital over the past 30 years. Does he agree that the way in which we tax and provide reliefs to capital is key to controlling that balance? Does he also agree that we need to do more to increase wage levels, which have historically been going down in relation to capital over a long period of time?

Steve Baker: I think I hear the echoes of a particularly fashionable economist there. If the hon. Lady is saying that she would like rising real wage levels, of course I agree with her. Who wouldn’t? I want rising real wage levels, but something about which I get incredibly frustrated is the use of that word “capital”. I have heard economists talk about capital when what they really mean is money, and typically what they mean by money is new bank credit, because 97% of the money supply is bank credit. That is not capital; capital is the means of production. There is a lengthy conversation to be had on this subject, but if the hon. Lady will forgive me, I do not want to go into that today. I fear that we have started to label as capital money that has been loaned into existence without any real backing. That might explain why our capital stock has been undermined as we have de-industrialised, and why real wages have dropped. In the end, real wages can rise only if productivity increases, and that means an increase in the real stock of capital.

To return to where I wanted to go: where did all the money that was created as debt go? The sectoral lending figures show that while some of it went into commercial property, and some into personal loans, credit cards and so on, the rise of lending into real productive businesses excluding the financial sector was relatively moderate. Overwhelmingly, the new debt went into mortgages and the financial sector. Exchange and the distribution of wealth are part of the same social process. If I buy an apple, the distribution of apples and money will change. Money is used to buy houses, and we

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should not be at all surprised that an increased supply of money into house-buying will boost the price of those homes.

Mr Ronnie Campbell (Blyth Valley) (Lab): This is a great debate, but let us talk about ordinary people and their labour, because that involves money as well. To those people, talking about how capitalism works is like talking about something at the end of the universe. They simply need money to survive, and anything else might as well be at the end of the universe.

Steve Baker: The hon. Gentleman is quite right, and I welcome the spirit in which he asks that question. The vast majority of us, on both sides of the House, live on our labour. We work in order to obtain money so that we can obtain the things we need to survive.

The hon. Gentleman pre-empts another remark that I was going to make, which is that there is a categorical difference between earning money through the sweat of one’s brow and making money by lending it to someone in exchange for a claim on the deeds to their house. Those two concepts are fundamentally, categorically different, and this goes to the heart of how capitalism works. I appreciate that very little of this would find its way on to an election leaflet, but it matters a great deal nevertheless. Perhaps I shall need to ask my opponent if he has followed this debate.

My point is that if a great fountain of new money gushes up into the financial sector, we should not be surprised to find that the banking system is far wealthier than anyone else. We should not be surprised if financing and housing in London and the south-east are far wealthier than anywhere else. Indeed, I remember that when quantitative easing began, house prices started rising in Chiswick and Islington. Money is not neutral. It redistributes real income from later to earlier owners—that is, from the poor to the rich, on the whole. That distribution effect is key to understanding the effect of new money on society. It is the primary cause of almost all conflicts revolving around the production of money and around the relations between creditors and debtors.

Sir William Cash: My hon. Friend might be aware that, before the last general election, my right hon. Friend the Member for Wokingham (Mr Redwood) and I and one or two others attacked the Labour party for the lack of growth and expressed our concern about the level of debt. If we add in all the debts from Network Rail, nuclear decommissioning, unfunded pension liabilities and so on, the actual debt is reaching extremely high levels. According to the Government’s own statements, it could now be between £3.5 trillion and £4 trillion. Does my hon. Friend agree that that is extremely dangerous?

Steve Baker: It is extremely dangerous and it has been repeated around the world. An extremely good book by economist and writer Philip Coggan, of The Economist, sets out just how dangerous it is. In “Paper Promises: Money, Debt and the New World Order”; a journalist from The Economist seriously suggests that this huge pile of debt created as money will lead to a wholly new monetary system.

I have not yet touched on quantitative easing, and I will try to shorten my remarks, Mr Speaker, but the point is this: having lived through this era where the

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money supply tripled through new lending, the whole system, of course, blew up—the real world caught up with this fiction of a monetary policy—and so QE was engaged in. A paper from the Bank of England on the distributional effects of monetary policy explains that people would have been worse off if the Bank had not engaged in QE—it was, of course, an emergency measure. But one thing the paper says is that asset purchases by the Bank

“have pushed up the price of equities by as least as much as they have pushed up the price of gilts.”

The Bank’s Andy Haldane said, “We have deliberately inflated the biggest bond market bubble in history.”

Mr Jim Cunningham (Coventry South) (Lab): What is the hon. Gentleman’s view of QE? How does he see it fitting into the great scheme of things?

Steve Baker: As I am explaining, QE is a great evil; it is a substitute for proper reform of the banking system. But this is the point: if the greatest bubble has been blown in the bond markets and equities have been pushed up by broadly the same amount, that is a terrible risk to the financial system.

Mr MacNeil: Surely there is a difference depending on where the QE goes. In an economy that has a demand deficit and needs demand to be stimulated, if QE goes into the pockets of those who are going to spend the money, surely QE can create some more motion in the economy, but if QE goes into already deep pockets and makes them larger and deeper, that is a very different thing.

Steve Baker: Again, the hon. Gentleman touches on an interesting issue. Once the Bank legitimises the idea of money creation and giving it to people in order to get the economy going, the question then arises: if you are going to create it and give it away, why not give it to other people? That then goes to the question: what is money? I think it is the basis of a moral existence, because in our lives we should be exchanging value for value. One problem with the current system is that we are not doing that; something is being created in vast quantities out of nothing and given away. The Bank explains that 40% of the assets that have been inflated are held by 5% of households, with 80% held by people over 45. It seems clear that QE—a policy of the state to intervene deeply in money—is a deliberate policy of increasing the wealth of people who are older and wealthier.

Mr MacNeil: One word the hon. Gentleman used was “moral”, and he touches on what the economist Paul Krugman will say: some on the right see the recession and so on as a morality play, and confuse economics and morals. Sometimes getting things going economically is not about the straightforward “morality” money the hon. Gentleman has touched on. That could be one reason why the recovery is taking so long.

Steve Baker: I am conscious that I have already used slightly more time than I intended, Mr Speaker, and I have a little more to say because of these interventions. All these subjects, as my bookshelves attest, are easily

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capable of being explained over hundreds of pages. My bottom line on this is: I want to live in a society where even the most selfish person is compelled by our institutions to serve the needs of other people. The institution in question is called a free market economy, because in a free market economy people do not get any bail-outs and do not get to live at somebody else’s expense; they have to produce what other people want. One thing that has gone wrong is that those on the right have ended up defending institutions that are fundamentally statist.

Douglas Carswell (Clacton) (UKIP): I congratulate the hon. Gentleman on bringing this important subject to the attention of the House. Does he agree that, far from shoring up free market capitalism, the candy floss credit system the state is presiding over replaces it with a system of crony corporatism that gives capitalism a bad name and undermines its very foundations?

Steve Baker: I am delighted to agree with my hon. Friend—he is that, despite the fact I will not be seeing Nigel later. We have ended up pretending that the banking system and the financial system is a free market when the truth is that it is the most hideous corporatist mess. What I want is a free market banking system, and I will come on to discuss that.

I wanted to make some remarks about price signals, but I will foreshorten them, and try to cover the issue as briskly as I can—it was the subject of my maiden speech. Interest rates are a price signal like any other. They should be telling markets about people’s preferences for goods now compared with goods later. If they are deliberately manipulated, they will tell entrepreneurs the wrong thing and will therefore corrupt people’s investment decisions. The bond and equity markets are there to allocate capital. If interest rates are manipulated and if new money is thrown into the system, prices get detached from the real world values they are supposed to be connected to—what resources are available, what technology is available, what people prefer. The problem is that these prices, which have been detached from reality, continue to guide entrepreneurs and investors, but if they are now guiding entrepreneurs and investors in a direction that takes them away from the real desires of the public and the available resources and the technology, we should not then be surprised if we end up with a later disaster.

In short, after prices have been bid up by a credit expansion, they are bound to fall when later the real world catches up with it. That is why economies are now suffering this wrecking ball of inflation followed by deflation, and here is the rub: throughout most of my life, the monetary policy authorities have responded to these corrections by pumping in more new money—previously through ever cheaper credit, and now through QE. This raises the question of where this all goes, and brings me back to the point my hon. Friend the Member for Stone (Sir William Cash) provoked from me: that this might be pointing towards an end of this monetary order. That is not necessarily something to be feared, because the monetary order changed several times in the 20th century.

We have ended up in something of a mess. The Governor said about the transition once interest rates normalise:

“The orderliness of that transition is an open question.”

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I believe the Governor is demonstrating the optimism appropriate to his role, because I think it is extremely unlikely that we will have an orderly transition once interest rates start to normalise. The problem is basically that Governments want to spend too much money. That has always been the case throughout history. Governments used to want to fund wars. Now, for all good, moral, decent, humanitarian reasons, we want to fund health, welfare and education well beyond what the public will pay in taxes. That has meant we needed easy money to support the borrowing.

What is to be done? A range of remedies are being proposed. Positive Money proposes the complete nationalisation of the production of money, some want variations on a return to gold, perhaps with free banking, and some want a spontaneous emergence of alternative moneys like Bitcoin.

I would just point out that Walter Bagehot is often prayed in aid of central banking policy, but his book “Lombard Street” shows that he did not support central banking; he thought it was useless to try to propose any change. What we see today is that, with alternative currencies such as Bitcoin spontaneously emerging, it is now possible through technology that, within a generation, we will not all be putting our money in a few big mega-banks, held as liabilities, issued out of nothing.

I want to propose three things the Government can practically do. First, the present trajectory of reform should be continued with. After 15 years of studying these matters, and now having made it to the Treasury Committee, I am ever more convinced that there is no way to change the present monetary order until the ideas behind it have been tested to destruction—and I do mean tested to destruction. This is an extremely serious issue. It will not change until it becomes apparent that the ideas behind the system are untenable.

Secondly, and very much with that in mind, we should strongly welcome proposals from the Bank’s chief economist, Andy Haldane, that it will commission “anti-orthodox research”, and it will

“put into the public domain research and analysis which as often challenges as supports the prevailing policy orthodoxy on certain key issues.”

That research could make possible fundamental monetary reform in the event of another major calamity.

Thirdly, we should welcome the Chancellor’s recent interest in crypto-currencies and his commitment to make Britain a “centre of financial innovation.” Imperfect and possibly doomed as it may be, Bitcoin shows us that peer-to-peer, non-state money is practical and effective. I have used it to buy an accessory for a camera; it is a perfectly ordinary legal product and it was easier to use than a credit card and it showed me the price in pounds or any other currency I liked. It is becoming possible for people to move away from state money.

Every obstacle to the creation of alternative currencies within ordinary commercial law should be removed. We should expand the range of commodities and instruments related to those commodities that are treated like money, such as gold. That should include exempting VAT and capital gains tax and it should be possible to pay tax on those new moneys. We must not fall into the same trap as the United States of obstructing innovation. In the case of the Liberty Dollar and Bernard von NotHaus, it

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seems that a man may spend the rest of his life in prison simply for committing the supposed crime of creating reliable money.

Finally, we are in the midst of an unprecedented global experiment in monetary policy and debt. It is likely, as Philip Coggan set out, that this will result in a new global monetary order. Whether it will be for good or ill, I do not know, but as technology and debt advance, I am sure that we should be ready for a transformation. Society has suffered too much already under the present monetary orthodoxy; free enterprise should now be allowed to change it.

11.45 am

Mr Michael Meacher (Oldham West and Royton) (Lab): I, too, strongly congratulate the hon. Member for Wycombe (Steve Baker) on securing this debate, which everyone recognises is vital and which has not been debated in this House for 170 years, since Sir Robert Peel’s Bank Charter Act 1844. The hon. Gentleman drew that fact to my attention when we were last speaking in a similar debate. That Act prohibited the private banks from printing paper money. In light of the financial crash of 2008-09 and the colossal expansion of money supply that underpinned it—no less than a twenty-two-fold increase in the 30 neo-liberal years between 1980 and 2010—the issue is whether that prohibition should be extended to include electronic money.

It is unfortunate that it is so little understood by the public that money is created by the banks every time they make a loan. In effect, the banks have a virtual monopoly—about 97%—over domestic credit creation, so they determine how money is allocated across the economy. That has led to the vast majority of money being channelled into property markets and the financial sector. According to Bank of England figures for the decade to 2007, 31% of additional money created by bank lending went to mortgage lending, 20% to commercial property, and 32% to the financial sector, including to mergers and acquisitions and trading and financial markets. Those are extraordinary figures.

Mr Jim Cunningham (Coventry South) (Lab): Given what my right hon. Friend has just said, is there not an argument, in this situation of unlimited credit from banks, for the Bank of England to intervene?

Mr Meacher: My hon. Friend anticipates the main line of my argument, so if he is patient I think I will be able to satisfy him. Crucially, only 8% of the money referred to went to businesses outside the financial sector, with a further 8% funding credit cards and personal loans.

Mr MacNeil: I hear what the right hon. Gentleman says about money going into building, housing and mortgages, but is that not because the holders of money reckon that they can get a decent return from that sector? They would invest elsewhere if they thought that they could get a better return. One reason why the UK gets a better return from that area than, say, Germany is that we have no rent controls. As a result, money is more likely to go into property than into developing industry, which is more likely to happen in Germany.

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Mr Meacher: I very much agree with that argument. Again, I assure the hon. Gentleman that I will return to that matter later in my speech. He is absolutely right that the reason is the greater returns that the banks can get from the housing and rental sector. Our rental sector, which is different from that in Germany and other countries, is the cause of that.

It is only this last 16%—the 8% lent to businesses and the 8% to consumer credit—that has a real impact on GDP and economic growth. The conclusion is unavoidable: we cannot continue with a system in which so little of the money created by banks is used for the purposes of economic growth and value creation and in which, instead, to pick up on the point made by the hon. Member for Na h-Eileanan an Iar (Mr MacNeil), the overwhelming majority of the money created inflates property prices, pushing up the cost of living.

In a nutshell, the banks have too much power and they have greatly abused it. First, they have been granted enormous privileges since they can create wealth simply by writing an accounting entry on a register. They decide who uses that wealth and for what purpose and they have used their power of credit creation hugely to favour property and consumption lending over business investment because the returns are higher and more secure. Thus the banks maximise their own interests but not the national interest.

Secondly, if they fail to meet their liabilities, the banks are not penalised. Someone else pays up for them. The first £85,000 of deposits are covered by a guarantee underwritten by the state and in the event of a major financial crash they are bailed out by the implicit taxpayer guarantee—

Steve Baker rose—

Mr Meacher: Let me finish, and I will of course give way.

The banks have been encouraged by that provision into much more risky, even reckless, investment, especially in the case of exotic financial derivatives—

Mr Jim Cunningham rose—

Mr Meacher: Members are beginning to queue up to intervene, but let me finish my point first.

The banks have been encouraged even to the point at which after the financial crash of 2008-09 the state was obliged to undertake the direct bail-out costs of nearly £70 billion as well as to provide a mere £1 trillion in support of loan guarantees, liquidity schemes and asset protection arrangements.

Steve Baker: I wholly agree with the right hon. Gentleman. The moral hazard problem is absolutely enormous and one of the most fundamental problems. However, the British Bankers Association picked me up when I said it was a state-funded deposit insurance scheme and told me it was industry-funded. I think the issue now is that nobody really believes for a moment that the scheme will not be back-stopped by the taxpayer.

Mr Meacher: As always, I am grateful for the intervention from the hon. Gentleman—let me call him my hon. Friend, as I think that on this issue he probably is.

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Mr Jim Cunningham: On the question of banks investing in the property market, does my right hon. Friend think we could learn anything from the United States and the collapse of Fannie Mae? Are we in a similar situation?

Mr Meacher: Again, that takes me down a different path, but there is considerable read-across.

Douglas Carswell: The right hon. Gentleman has been absolutely magnificent in diagnosing the problem, but when it comes to the solution and passing power away from banks, rather than passing the power upwards to a regulator or to the state, would he entertain the idea of empowering the consumer who deposits money with the bank? Surely the real failure is that the Bank Charter Act 1844 does not give legal ownership of deposits to the person paying money into the bank. The basis of fractional-reserve banking is the legal ownership the bank has when money is paid in. If we tackle that, the power will pass from the big state-subsidised corporations and banks outwards to the wider economy.

Mr Meacher: I have great sympathy with what the hon. Gentleman is saying—

Ms Diane Abbott (Hackney North and Stoke Newington) (Lab) rose—

Mr Meacher: One at a time, please. I was going to say a little bit more than that I had sympathy with what the hon. Member for Clacton (Douglas Carswell) said.

I will argue that the capacity to regulate an increasingly and exceedingly complex financial sector is not the proper way, and I will propose an alternative solution. I am strongly in favour of structural changes that enable people to achieve greater control over the money that they have contributed.

Ms Abbott: I was intrigued to hear my right hon. Friend mention depositor protection. Is he saying that he is against any form of depositor protection?

Mr Meacher: The protection of deposits is up to £85,000 and is underwritten by the state.

Ms Abbott: Is my right hon. Friend against?

Mr Meacher: I am neither for nor against. I am making the point that the arrangement encourages the banks to increase their risk taking. If they are caught out, for each depositor £85,000 is guaranteed by the state. I agree with the hon. Member for Wycombe that we need much wider structural change. It is not a question of tweaking one thing here or there.

The question at the heart of the debate is who should create the money? Would Parliament ever have voted to delegate power to create money to those same banks that caused the horrendous financial crisis that the world is still suffering? I think the answer is unambiguously no. The question that needs to be put is how we should achieve the switch from unbridled consumerism to a framework of productive investment capable of generating a successful and sustainable manufacturing and industrial base that can securely underpin UK living standards.

Two models have hitherto been used to operate such a system. One was the centralised direction of finance, which was used extremely successfully by several Asian countries, especially the south-east Asian so-called tiger

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economies, after the second world war, to achieve take-off. I am not suggesting that that method is appropriate for us today. It is not suited to advanced industrial democracies. The other method was to bring about through official “guidance” the rationing of bank credit in accordance with national targets and, where necessary, through quantitative direct controls. In the post-war period, that policy worked well in the UK for a quarter of a century, until the 1970s when it was steadily replaced by the purely market system of competition and credit control based exclusively on interest rates. In our experience of the past 30 or 40 years, that has proved deeply unstable, dysfunctional and profoundly costly.

Since then there have been sporadic attempts to create a safer banking system, but these have been deeply flawed. Regulation under the dictates of the neo-liberal ideology has been so light-touch—by new Labour just as much as by the other Government—that it has been entirely ineffective. Regulation has been too detailed. I remind the House that Basel III has more than 400 pages, and the US Dodd-Frank Bill has a staggering 8,000 pages or more. It is impossibly bureaucratic and almost certainly full of loopholes. Other regulation has been so cautious—for example, the Vickers commission proposal for Chinese walls between the investment and retail arms of a bank—that it missed the main point. Whatever regulatory safeguards the authorities put in place faced regulatory arbitrage from the phalanx of lawyers and accountants in the City earning their ill-gotten bonuses by unpicking or circumventing them.

Mr Ronnie Campbell (Blyth Valley) (Lab): My right hon. Friend is always very good on these subjects. Would I be going too far if I were to suggest that we should nationalise the City, nationalise the banks and run ourselves a Government on behalf of the people?

Mr Meacher: Public ownership of the banks is a significant issue, but I am not going to propose it in my speech. It would be a mistake to return RBS and Lloyds to the private sector, and the arguments about Barclays and HSBC need to be made, but not in this debate. I shall suggest an alternative solution that removes the power of money creation from the banks and puts it in different hands to ensure better results in the national interest.

Against that background, there are solid grounds for examining—this is where I come to my proposal—the creation of a sovereign monetary system, as recommended by several expert commentators recently. Martin Wolf, who, as everyone in this House will know, is an influential chief economics commentator for the Financial Times, wrote an article a few months ago—on 24 April, to be precise—entitled, “Strip private banks of their power to create money”. He recommends switching from bank-created debt to a nationalised money supply.

Lord Adair Turner, the former chair of the Financial Services Authority, delivered a speech about 18 months ago, in February 2013, discussing an alternative to quantitative easing that he termed “overt money finance,” which is also known as a from of sovereign money. Such a system—I will describe its main outline—would restrict the power to create all money to the state via the central bank. Changes to the rules governing how banks operate would still permit them to make loans, but would make it impossible for them to create new money in the

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process. The central bank would continue to follow the remit set by the Chancellor of the Exchequer, which is currently to deliver price stability, which is defined at the present time as an inflation target of 2%. The central bank would be exclusively responsible for creating as much new money as was necessary to support non-inflationary growth. Decisions on money creation would be taken independently of Government by a newly formed money creation committee or by the existing Monetary Policy Committee, either of which would be accountable to the Treasury Committee. Accountability to the House is crucial to the whole process.

Mr Jim Cunningham: Going back to the question I asked my right hon. Friend earlier, what would be the role of the Bank of England?

Mr Meacher: I will come on to explain that. The Bank of England has an absolutely crucial role to play. If my hon. Friend listens to the last bit of my speech, he will get a full answer to that question.

A sovereign money system thus offers—if I may say this—a clear thermostat to balance the economy, which is notoriously lacking at present. In times when the economy is in recession or growth is slow, the money creation committee would be able to increase the rate of money creation, to boost aggregate demand. If growth is very high and inflationary pressures are increasing, it could slow down the rate of money creation. That would be a crucial improvement over the current system, whereby the banks either produce too much mortgage credit in a boom because of the high profit prospects, which produces a housing bubble and raises house prices, or produce too little credit in a recession, which exacerbates the lack of demand.

Lending to businesses is central to this whole debate.

Derek Twigg (Halton) (Lab): I want to take my right hon. Friend back to when he mentioned accountability to Parliament and the Select Committee. Could he enlarge on that point? On accountability, what powers would Parliament have to ensure that his proposal was being followed through properly and the rules were being laid down?

Mr Meacher: The purpose of accountability to the Treasury Committee would be to enable Parliament fully to explore the manner in which the money creation committee or the Monetary Policy Committee was working. I would anticipate a full three-hour discussion with the leading officials of those committees before the Treasury Committee, and if necessary they could be given a hard time. Certainly, the persons in this House who are most competent to deal with the matter would make clear their priorities, and where they thought the money creation committee was not paying sufficient attention to the way in which it was operating, and they would suggest changes. They would not have the power formally to compel the money creation committee to change, but I think the whole point about Select Committees, which are televised and discussed in the media, is that they have a very big effect. That would be a major change compared with what we have at present. Like all systems, if it is inadequate it can be modified, changed and increasingly enforced.

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Sir William Cash: With reference to the Treasury Committee, does the right hon. Gentleman see a potential role for some form of joint Committee, perhaps with the Public Accounts Committee, whose origins are to do with taxation and spending? Does he think that broadening scrutiny a little in that direction might be helpful so that we get the full benefit of the all-party agreement of both Committees?

Mr Meacher: That is a helpful intervention. Although it is a relatively big part of what I am proposing, it is not for me to suggest exactly what the structure of accountability should be. I would be strongly in favour of increasing it as the hon. Gentleman proposes. Until this House is content that it has a proper channel of accountability which is effective in terms of the way our financial system is run, we should bring in further changes to the structure of accountability as may be necessary, such as along the lines that he suggests.

On lending to businesses, the experience that we have had in the past half-decade has been very unsatisfactory. Under a sovereign monetary system, the central bank would be empowered to create money for the express purpose of that funding role. The money would be lent to banks with the requirement that the funds were used for productive purposes, whereas lending for speculative purposes—for example, to purchase pre-existing assets, either financial or property—would not be allowed. The central bank could also create and lend funds to other intermediaries—the hon. Member for Wycombe referred to this—such as regional or publicly owned business banks, which would ensure that a floor could be placed under the level of lending to businesses, which would be a great relief to British business, guaranteeing support for the real economy.

To avoid misunderstanding, I should add that within the limits imposed by the central bank on the broad purposes for which money may be lent, lending decisions would be entirely at the discretion of the lending institutions, not of the Government or the central bank.

I believe that a sovereign monetary system offers very considerable advantages over the current system. First, it would create a better and safer banking system because banks would have an incentive to take lower levels of risk, as there would be no option of a bail-out or rescue from taxpayers and thus moral hazard would be reduced. Secondly, it would increase economic stability because money creation by banks tends to be pro-cyclical, as I explained, whereas money creation by the central bank would be counter-cyclical. Thirdly, sovereign money crucially supports the real economy, whereas under the current system 83% of lending does not at present go into productive investment. I underline that three times.

Ann McKechin: My right hon. Friend said that the aim would be to reduce risk and for banks to be more cautious, but if we are to encourage innovation in manufacturing, would we not require an investment bank at state level that could fund the riskier levels of innovation to ensure that they get to market, because they are not at the point where they would be commercially viable?

Mr Meacher: That is an extremely important point and, again, I strongly support it. The current Secretary of State for Business, Innovation and Skills has been

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struggling to introduce a Government-supported business investment bank and has recently announced something along those lines. I think that should be greatly expanded. The book by Mariana Mazzucato, which I hope most of us have read, “The Entrepreneurial State”, shows the degree to which funding for major innovation, not just in this country but in many other countries which she cites, has been financed through the state because the private sector was not willing to take on board the risk involved. One understands that, but one does need to recognise that the role of the state is extremely important, and under a Labour Government I would like to see something like this being brought in.

Ian Murray (Edinburgh South) (Lab): My right hon. Friend makes a tremendous case for money creation and what we should be considering in this House, but I wonder whether there is also a cultural issue. Many businesses and lenders tell me that there is a cultural problem in the United Kingdom for businesses, particularly entrepreneurial businesses that we have heard about from my hon. Friend the Member for Glasgow North (Ann McKechin), with regard to giving away equity rather than creating debt—funding businesses through equity rather than debt. Other countries throughout Europe that are incredibly successful at giving away equity rather than creating debt have much more growth in their entrepreneurial economy.

Mr Meacher: That is perfectly true, and my hon. Friend makes an important point. The proposals that I am making would support that. There is a very different climate in this country, largely brought about by the churning in the City of London where profits have to be increased or reach a relevant size within a very short period, such as three or six months. Most entrepreneurial businesses cannot possibly produce a decent profit within that period, so the current financial system does not encourage what my hon. Friend wants. These proposals would make money creation available to those we really want to support much more fully than at present.

Fourthly, under the current system, house price bubbles transfer wealth, as we all know, from the young to the old and from those who cannot get on the property ladder to existing house owners, which increases wealth inequality, while removing the ability of banks to create money should dampen house price rises and thus reduce the rate of wealth inequality.

My fifth and last point, which I think is very important, is that sovereign money redresses a major democratic deficit. Under the current system, around just 80 board members across the largest five banks make decisions that shape the entire UK economy, even though these individuals have no obligation or mandate to consider the needs of society or the economy as a whole, and are not accountable in any way to the public: it is for the maximisation of their own interests, not the national interest. Under sovereign money, the money creation committee would be highly transparent—we have discussed this already—and accountable to Parliament.

For all those reasons, the examination of the merits of a sovereign monetary system is now urgently needed, and I call on the Government to set up a commission on money and credit, with particular reference to the potential benefits of sovereign money, which offers a way out of

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the continuing and worsening financial crises that have blighted this country and the whole international economy for decades.

12.13 pm

Mr Peter Lilley (Hitchin and Harpenden) (Con): It is a pleasure, as always, to follow the right hon. Member for Oldham West and Royton (Mr Meacher), who gave us a characteristically thoughtful and radical speech. I do not necessarily start from the same premises as him, but what he says is an important contribution to the debate, on the securing of which I credit my hon. Friend the Member for Wycombe (Steve Baker). He has done the House and the country a service by forcing us to focus on the issue of where money comes from and what banks do. He did so in an insightful way. Above all, he showed that he sees, as our old universities used to see, economics as a branch of moral sciences. It is not just a narrow, analytical, economic issue, but a moral, philosophical and ultimately a theological issue, which he illuminated well for the House.

A lot has been made of the ignorance of Members of Parliament of how money is created. I suspect that that ignorance, not just in Members of Parliament but in the intellectual elite in this country, explains many things, not least why we entered the financial crisis with a regulatory system that was so unprepared for a banking crisis. I suspect that it is because people have not reflected on why banks are so different from all other capitalist companies. They are different in three crucial respects, which is why they need a very different regulatory system from normal companies.

First, all bankers—not just rogue bankers but even the best, the most honourable and the most honest—do things that would land the rest of us in jail. Near my house in France is a large grain silo. After the harvest, farmers deposit grain in it. The silo gives them a certificate for every tonne of grain that they deposit. They can withdraw that amount of grain whenever they want by presenting that certificate. If the silo owner issued more certificates than there was grain kept in his silo, he would go to jail, but that is effectively what bankers do. They keep as reserves only a fraction of the money deposited with them, which is why we call the system the fractional reserve banking system. Murray Rothbard, a much neglected Austrian economist in this country, said very flatly that banking is therefore fraud: fractional reserve banking is fraud; it should be outlawed; banks should be required to keep 100% reserves against the money they lend out. I reject that conclusion, because there is a value in what banks do in transforming short-term savings into long-term investments. That is socially valuable and that is the function banks serve.

We should recognise the second distinctive feature of banks that arises directly from the fact that they have only a fraction of the reserves against the loans they make: banks, individually and collectively, are intrinsically unstable. They are unstable because they borrow short and lend long. I have been constantly amazed throughout the financial crisis to hear intelligent people say that the problem with Northern Rock, RBS or HBOS, or with the German, French, Greek and other banks that ran into problems, was the result of their borrowing short and lending long, and they should not have been doing it, as if it was a deviation from their normal role. Of course banks borrow short and lend long. That is what

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banks do. That is what they are there for. If they had not done that they would not be banks. Banking works so long as too many depositors do not try to withdraw their funds simultaneously. However, if depositors, retail or wholesale, withdraw or refuse to renew their short-term deposits, a bank will fail.

If normal companies fail, there is no need for the Government to intervene. Their assets will be redeployed in a more profitable use or taken over by a better-managed company. But if one bank fails, depositors are likely to withdraw deposits from other banks, about which there may also be doubts. A bank facing a run, whether or not initially justified, would be forced to call in loans or sell collateral, causing asset prices to fall, thereby undermining the solvency of other banks. So the failure of one bank may lead to the collapse of the whole banking system.

The third distinctive feature of banks was highlighted by my hon. Friend the Member for Wycombe: banks create money. The vast majority of money consists of bank deposits. If a bank lends a company £10 million, it does not need to go and borrow that money from a saver; it simply creates an extra £10 million by electronically crediting the company’s bank account with that sum. It creates £10 million out of thin air. By contrast, when a bank loan is repaid, that extinguishes money; it disappears into thin air. The total money supply increases when banks create new loans faster than old loans are repaid. That is where growth in the money supply usually comes from, and it is the normal situation in a growing economy. Ideally, credit should expand so that the supply of money grows sufficiently rapidly to finance growth in economic activity. When a bank or banks collapse, they will call in loans, which will reduce the money supply, which in turn will cause a contraction of activity throughout the economy.

In that respect, banks are totally different from other companies—even companies that also lend things. If a car rental company collapses, it does not lead to a reduction in the number of cars available in the economy. Its stock of cars can be sold off to other rental companies or to individuals. Nor does the collapse of one rental company weaken the position of other car rental companies; on the contrary, they then face less competition, which should strengthen their margins.

The collapse of a car rental company has no systemic implications, whereas the collapse of a bank can pull down the whole banking system and plunge the economy into recession. That is why we need a special regulatory regime for banks and, above all, a lender of last resort to pump in money if there is a run on the banks or a credit crunch, yet this was barely discussed when the new regulatory structure of our financial and banking system was set up in 1998. The focus then was on consumer protection issues. Systemic stability and the lender-of-last-resort function were scarcely mentioned. That is why the UK was so unprepared when the credit crunch struck in 2007. Nor were these aspects properly considered when the euro was set up. As a result, a currency and a banking system were established without the new central bank being given the power to act as lender of last resort. It has had to usurp that power, more or less illegally, but that is its own problem.

This analysis is not one of those insights that come from hindsight. Some while ago, Michael Howard, now the noble Lord Howard, reminded Parliament—and

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indeed me; I had completely forgotten—that I was shadow Chancellor when the Bill that became the Bank of England Act 1998 was introduced. He pointed out that I then warned the House that

“With the removal of banking control to the Financial Services Authority…it is difficult to see how…the Bank remains, as it surely must, responsible for ensuring the liquidity of the banking system and preventing systemic collapse.”

And so it turned out. I added:

“setting up the FSA may cause regulators to take their eye off the ball, while spivs and crooks have a field day.”—[Official Report, 11 November 1997; Vol. 300, c. 731-32.]

So that turned out, too. I could foresee that, because the problem was not deregulation, but the regulatory confusion and the proliferation of regulation introduced by the former Chancellor, which resulted from a failure to focus on the banking system’s inherent instability, and to provide for its stability.

This failure to focus on the fundamentals was not a peculiarly British thing. The EU made the same mistakes in spades when setting up the euro, and at the very apogee of the world financial system, they deluded themselves that instability was a thing of the past. In its “Global Financial Stability Report” of April 2006, less than 18 months before the crisis erupted, the International Monetary Fund, no less, said:

“There is growing recognition that the dispersion of credit risk by banks to a broader and more diverse group of investors, rather than warehousing such risk on their balance sheets, has helped to make the banking and overall financial system more resilient…The improved resilience may be seen in fewer bank failures and more consistent credit provision. Consequently, the commercial banks…may be less vulnerable today to credit or economic shocks.”

The supreme irony is that those at the pinnacle of the world regulatory system believed that the very complex derivatives that contributed to the collapse of the financial system would render it immune to such instability. We need constantly to be aware that banks are unstable, and are the source of money. If instability leads to a crash, that leads to a contraction in the money supply, and that can exacerbate and intensify a recession.

Bob Stewart (Beckenham) (Con): I am listening carefully to my right hon. Friend. Does that mean that the banks are uncontrollable, as things stand?

Mr Lilley: No; they can and should be controlled. They are controlled both by being required to have assets, and ultimately by the measures that Government should take to ensure that they do not expand lending too rapidly. That is the point that I want to come on to, because a failure to focus on the nature of banking and money creation causes confusion about the causes of inflation and the role of quantitative easing.

As too many people do not understand where money comes from, there is confusion about quantitative easing. To some extent, the monetarists, of whom I am one, are responsible for that confusion. For most of our lifetime, the basic economic problem has been inflation. There have been great debates about its causes. Ultimately, those debates were won by the monetarists. They said, “Inflation is caused by too much money—by money growing more rapidly than output. If that happens, inevitably and inexorably, prices will rise.” The trouble was that all too often, monetarists used the shorthand

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phrase, “Inflation is caused by Government printing too much money.” In fact, it is caused not by Government printing the money, but by banks lending money and then creating new money at too great a rate for the needs of the economy. We should have said, “Inflation follows when Governments allow or encourage banks to create money too rapidly.” The inflationary problem was not who created the money, but the fact that too much money was created.

The banks are now not lending enough to create enough money to finance the growth and expansion of the economy that we need. That is why the central bank steps in with quantitative easing, which is often described as the bank printing money. Those who have been brought up to believe that printing money was what caused inflation think that quantitative easing must, by definition, cause inflation. It only causes inflation if there is too much of it—if we create too much money at a faster rate than the growth of output, and therefore drive up prices—but that is not the situation at present.

Mr MacNeil: The right hon. Gentleman is giving a very good explanation of the different circumstances in which money is created. He has spoken about the morality, and about quantitative easing. When there is demand, what is his view of the theory of helicopter money, and where that money gets spread to?

Mr Lilley: As a disciple of Milton Friedman, I am rather attracted to the idea of helicopter money; I think it was he who introduced the metaphor, and said that it would be just as effective if money were sprayed by a helicopter as if it were created by banks. Hopefully, as I live quite near the helicopter route to Battersea, I would be a principal recipient. I do not think that there is a mechanism available that would allow us to do that, but I am not averse to that in principle, if someone could do it. My point is that the banks, either spontaneously or encouraged by the central bank through quantitative easing, must generate enough money to ensure that the economy can grow steadily and stably.

Mr MacNeil: Could it not be argued that increasing welfare payments would be a form of helicopter money, because the people most likely to spend money are those with very little money? If we put money in the pockets of those who have little money, it would be very positive, because of the economic multiplier; the money would be spent, and would circulate, very quickly.

Mr Lilley: There are far better reasons for giving money to poor people than because their money will circulate more rapidly—and there is no evidence for that; I invite the hon. Gentleman to read Milton Friedman’s “A Theory of the Consumption Function”, which showed that that is all nonsense. There are good reasons for giving money to poor people, namely that they are poor and need money. Whether the money should be injected by the Government spending more than they are raising, rather than by the central bank expanding its balance sheet, is a moot point.

All I want to argue today is that we should recognise that the economy is as much threatened by a shortage of money as it is by an excess of money. For most of our lifetimes the problem has been an excess, but now it is a shortage. We therefore need to balance in either occasion

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the rate of growth of money with the rate of growth of output if we are to have stability of prices and stable economic activity. I congratulate my hon. Friend the Member for Wycombe on bringing these important matters to the House’s attention.

12.30 pm

Austin Mitchell (Great Grimsby) (Lab): I welcome this debate and congratulate hon. Friends on securing it, because we have not debated this matter for over 100 years, and it is time we did so. This House and the Government are obsessed with money and the economy, but we never debate the creation of money or credit, and we should, because, when it comes to our present economic situation and the way the banks and the economy are run, that is the elephant in the room. It is time to think not outside the box, but outside the banks; it is time to think about the creation of credit and money.

I speak as a renegade social creditor who is still influenced by social credit thinking; I do not pledge total allegiance to Major Douglas, but I am still influenced by him. As has just been pointed out, 93% of credit is created by the banks, and a characteristic of what has happened to the economy since the ’70s is the enormous expansion of that credit. I have here a graph from Positive Money showing that the money created by the banks was £109 billion in 1980. Thanks to the financial reforms and the huge increase in the power of the banks since then, by 2010 that figure had risen to £2,213 billion, whereas the total cash created by the Government—the other 3%—had barely increased at all. Since 2000 we have seen the amount of money created by the banks more than double.

That has transformed the economy, because it has financialised everything and made money far more important. It has created debt-fuelled growth followed by collapse. It is being controlled by the banks, which have directed the money into property and financial speculation. Only 8% of the credit created has been lent to new businesses. The Government talk about the march of the makers, but the makers are not marching into the banks, because the banks are turning them away. Even commercial property is more important than makers. That has created a very lop-sided economy, with a weak industrial base that cannot pay the nation’s way in the world because investment has been directed elsewhere, and a very unequal society, which has showered wealth on those at the top, as Piketty shows, and taken it away from those at the bottom.

A very undesirable situation is being created. We have built an unstable economy that is very exposed to risk and to bubble economics, thanks to the financialisation process that has gone on since 1979. The state allocates all credit creation to the banks and then has to bail them out and guarantee them, at enormous expense and with the creation of debt for the public, when the bubble bursts and they collapse.

Some argue—Major Douglas would have argued this—that credit should therefore be issued only by the state, through the Bank of England. That would probably be a step too far in the present situation, given our present lack of education, but we can and should create the credit issued by the banks. We can and should separate the banks’ utility function—servicing our needs, with cheque books, pay and so on—and their speculative

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role. The Americans have moved a step further, with the Volcker rule, but it is not quite strong enough. In this country we tend to rely on Chinese walls, which are not strong at all. I think that only a total separation of the banks’ utility and speculative arms will do it, because Chinese walls are infinitely penetrable and are regularly penetrated.

We can limit the credit creation by the banks by increasing the reserve ratios, which are comparatively low at the moment—the Government have been trying to edge them up, but not sufficiently—or we could limit their power to create credit to the amount of money deposited with the banks as a salutary control. We could tax them on the hidden benefit they get from creating credit, because they get the signorage on the credit they create. If credit is created by banknotes and cash issued by the Government, the Government get the profit on that—the signorage. The banks just take the signorage on all the credit they issue and stash it away as a kind of hidden benefit, so why not tax that and give some of the profit from printing money to the state?

Martin Wolf, in an interesting article cited by my right hon. Friend the Member for Oldham West and Royton (Mr Meacher), has argued that only central banks should create new money and that it should be regulated by a public credit authority, rather like the Monetary Policy Committee. I think that that would be a solution and a possible approach. Why should we not regulate the issue of credit in that fashion?

That brings us back to the old argument about monetarism: whether credit creation is exogenous or endogenous. The monetarists thought that it was exogenous, so all we have to do is cut the supply of money into the economy in order to bring inflation under control. That was a myth, of course, because we cannot actually control the supply of money; it is endogenous. The economy, like a plant, sucks in the money it needs. But that can be regulated by a public credit authority so that the supply matches the needs of the economy, rather than being excessive, as it has been over the past few years. I think that that kind of credit authority needs to be created to regulate the flow of credit.

That brings me to the Government’s economic policy. The Government tell us that they have a long-term economic plan, which of course is total nonsense. Their only long-term economic plan is slash and burn. The only long-term economic planning that has been done is by the Bank of England.

Mr MacNeil: To quote Harry S. Truman, the worst thing about economists is that they always say, “On the other hand”. The hon. Gentleman talks about limiting and regulating how much money is to be sucked in by the economy, but who would decide that? The difficulty is that although the economy might be overheating in a certain part of the country, such as the south-east of England, it could be very cool in others, such as the north of Scotland. What might be the geographical effects of limiting the money going into the economic bloodstream if some parts of the plant—I am extending his metaphor—need the nutrients while other parts are getting too much?

Austin Mitchell: The hon. Gentleman often asks tricky questions, but this one is perfectly clear-cut. The credit supply for the peripheral and old industrial parts of the

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economy, which include Scotland, but also Grimsby, has been totally inadequate, and the banks have been totally reluctant to invest there. I once argued for helicopter money, as Simon Jenkins has proposed, whereby we stimulate the economy by putting money into helicopters and dropping it all over the country so that people will spend it. I would agree to that, provided that the helicopters hover over Grimsby, but I would have them go to Scotland as well, because it certainly deserves its share, as does the north of England. However, I do not want to get involved in a geographical dispute over where credit should be created.

The only long-term plan has been that of the Bank of England, which has kept interest rates flat to the floor for six years or so—an economy in that situation is bound to grow—and has supplemented that with quantitative easing. We have created £375 billion of money through quantitative easing. It has been stashed away in the banks, unfortunately, so it has served no great useful purpose. If that supply of money can be created for the purpose of saving the banks and building up their reserve ratios, it can be used for more important purposes—the development of investment and expansion in the economy. This is literally about printing money. Those of us with a glimmering of social credit in our economics have been told for decades, “You can’t print money—it would be terrible. It would be disastrous for the economy to print money because it leads to inflation.” Well, we have printed £375 billion of money, and it has not produced inflation. Inflation is falling.

Steve Baker rose—

Austin Mitchell: I am sorry—I am mid-diatribe and do not want to be interrupted.

It has proved possible to print money. The Americans have done it—there has been well over $1 trillion of quantitative easing in the United States. The European Central Bank is now contemplating it, as Mr Draghi casts around for desperate solutions to the stagnation that has hit the eurozone. The Japanese, surprisingly, did it only last week. If all can do it, and if it has been successful here and has not led to inflation, we should be able to use it for more useful and productive economic purposes than shoring up the banks.

If we go on creating more money through quantitative easing, we should channel it through a national investment bank into productive investment such as contracts for house building and new town generation. Through massive infrastructure work—although I would not include HS2 in that—we can stimulate the economy, stimulate growth, and achieve useful purposes that we have not been able to achieve. This is a solution to a lot of the problems that have bedevilled the Labour party. How do we get investment without the private finance initiative and the heavy burden that that imposes on health services, schools, and all kinds of activities? Why not, through quantitative easing, create contracts for housing or other infrastructure work that have a pay-off point and produce assets for the state?

I mentioned the article in which Martin Wolf advocates the approach of the Monetary Policy Committee. That is how we should approach this. I welcome this debate because it has to be the beginning of a wider debate in

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which we open our minds to the possibilities of managing credit more effectively for the better building of the strength of the British economy.

12.44 pm

Zac Goldsmith (Richmond Park) (Con): I want to put on record my gratitude to my hon. Friend the Member for Wycombe (Steve Baker) for having initiated this debate, and to his supporters from various parties. Having heard his speech—or most of it; I apologise for being late—I am even more satisfied that it was right to cast my vote for him to join the Treasury Committee.

My hon. Friend has introduced an incredibly important debate. As we have heard, this issue has not been debated here for well over a century. We would not be having it were it not for the fact that we are still in the midst of tumultuous times. We had the banking crash and the corresponding crash in confidence in the banking system and in the wider economy, and now, partly as a consequence, we have the problem of under-lending, particularly to small and medium-sized businesses. This subject could not be more important.

The right hon. Member for Oldham West and Royton (Mr Meacher)—I will call him my right hon. Friend because we work together on many issues—pointed out at the beginning of his speech that this issue is not well understood by members of the public. As I think he said later—if not, I will add it—it is also not well understood by Members of Parliament. I would include myself in that. I suspect that most people here would be humble enough to recognise that the banking wizardry we are discussing is such a complex issue that very few people properly understand it.

Bob Stewart: I totally associate myself with my hon. Friend’s comments about ignorance and include myself in that. It seems to me that the system is broken. The banks will not lend money because the Government have told them that they have to keep reserves. We do not like quantitative easing because that means that the banks are not lending. There is something very wrong with the system. It is not a case of “if the system isn’t broke, don’t fix it”, but “the system is broke, and someone’s got to fix it”.

Zac Goldsmith: My hon. Friend makes a valuable point that I will come to later.

If Members of Parliament do not really understand how money is created—I believe that that is the majority position, based on discussions that I have been having—how on earth can we be confident that the reforms that we have brought in over the past few years are going to work in preventing repeated collapses of the sort that we saw before the last election? In my view, we cannot be confident of that. The problem is the impulsive position taken by ignorant Members. I do not intend to be rude; as I said, I include myself in that bracket. For too many people, the impulse has been simply to call for more regulation, as though that is going to magic away these problems. As my hon. Friend the Member for Wycombe said, there are 8,000 pages of guidance in relation to one aspect of banking that he discussed. The problem is not a lack of regulation; it is the fact that the

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existing regulations miss the goal in so many respects. Banking has become so complex and convoluted that we need an entirely different approach.

When we talk to people outside Parliament about banking, the majority have a fairly simple view—the bank takes deposits and then lends, and that is the way it has always been. Of course, there is an element of truth in that, but it is so far removed from where we are today that it is only a very tiny element.

Steve Baker: My hon. Friend mentions the idea of straightforward, carry-through lending. When people talk about shadow banking, they are usually talking about asset managers who are lending and are passing funds straight through—similarly with peer-to-peer lenders. I am encouraged by the fact that when people are freely choosing to get involved with lending, they are not using the expansionary process but lending directly. Whereas the banks are seen simultaneously to fail savers and borrowers, things like peer-to-peer lending are simultaneously serving them both.

Zac Goldsmith: That is a really important point. There is a move towards such lending, but unfortunately it is only a fringe move that we see in the credit unions, for example. It is much closer to what original banking—pure banking or traditional banking—might have looked like. We even see it in some of the new start-ups such as Metro bank; I hesitate to call it a start-up because it is appearing on every high street. Those banks have much more conservative policies than the household-name banks that we have been discussing.

Most people understand the concept of fractional reserve banking even if they do not know the term—it is the idea that banks lend more than they can back up with the reserves they hold.

Guy Opperman (Hexham) (Con): My hon. Friend mentioned Metro, whose founder is setting up a bank—in which I should declare an interest—called Atom in the north-east. It is one of some 22 challenger banks of which Metro was the first. I missed the opening of the debate, so I have not heard everything that has been said, but I do not accept that it is all doom and gloom in banking. Does he agree that these new developments are proof that the banking system is changing and the old big banks are being replaced with the increased competition that we all need?

Zac Goldsmith: I certainly agree with the sentiment expressed. I am excited by the challengers, but I do not believe that it is enough. Competition has to be good because it minimises risk. I know that my hon. Friend the Economic Secretary has dwelt on and looked at this issue in great detail.

Even fractional reserve banking is only the start of the story. I will not repeat in detail what we have already heard, but banks themselves create money. They do so by making advances, and with every advance they make a deposit. That is very poorly understood by people outside and inside the House. It has conferred extraordinary power on the banks. Necessarily, naturally and understandably, banks will use and have used that power in their own interests. It has also created extraordinary risk and, unfortunately, because of the size and interconnectedness of the banks, the risk is on us. That

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is why I am so excited by the challengers that my hon. Friend has just described. As I have said, that is happening on the fringe: it is right on the edge. It is extraordinary to imagine that at the height of the collapse the banks held just £1.25 for every £100 they had lent out. We are in a very precarious situation.

When I was much younger, I listened to a discussion, most of which I did not understand, between my father and people who were asking for his advice. He was a man with a pretty good track record on anticipating turbulence in the world economy. He was asked when the next crash would happen, and he said, “The last person you should ask is an economist or a business man. You need to ask a psychiatrist, because so much of it involves confidence.” The point was proven just a few years ago.

The banking system and the wider economy have become extraordinarily unhinged or detached from reality. I would like to elaborate on the extraordinary situation in which it is possible to imagine economic growth even as the last of the world’s great ecosystems or the last of the great forests are coming down. The economy is no longer linked to the reality of the natural world from which all goods originally derive. That is probably a debate for another time, however, so I will not dwell on it.

Mr MacNeil: The hon. Gentleman is making a good point that we should remember. It was brought home to me by Icelandic publisher Bjorn Jonasson, who pointed out that we are not in a situation where volcanoes have blown up or there have been huge national disasters, famines or catastrophes brought on by war; as a couple of the hon. Gentleman’s colleagues have said, this is about a system failure within the rules, and it is worth keeping that in mind. Although there is much gloom in relation to the banking system, in many ways that should at the same time give us some hope.

Zac Goldsmith: The hon. Gentleman is right, but a growing number of commentators and voices are anticipating a much larger crash than anything we have seen in the past few years. I will not add to or detract from the credence of such statements, but it is possible to imagine how such a collapse might happen, certainly in the ecological system. We are talking about the banking system, but the two systems are not entirely separate.

We had a wake-up call before the election just a few years ago. My concern is that we have not actually woken up. It seems to me that we have not introduced any significant or meaningful reforms that go to the heart of the problems we are discussing. We have been tinkering on the edges. I do not believe that Parliament has been as closely involved in the process as it should be, partly because of the ignorance that I described at the beginning of my speech.

I want to put on the record my support for the establishment of a meaningful monetary commission or some equivalent in which we can examine the pros and cons of shifting from a fractional reserve banking system to something closer to a full reserve banking system, as some hon. Members have said. We need to understand the pros and cons of such a move, how possible it is, and who wins and who loses. I do not think that many people fully know the answers.

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We need to look at quantitative easing. I think that hon. Members on both sides of the House have accepted that it is not objective. Some believe that it is good and others believe that it is bad, but no one believes that it is objective. If the majority view is that quantitative easing is necessary, we need to ask this question: why not inject those funds into the real economy—into housing and energy projects of the kind that Opposition Members have spoken about—rather than using the mechanism in a way that clearly benefits only very few people within the world of financial and banking wizardry that we are discussing?

The issues need to be explored. The time has come to establish a monetary commission and for Parliament to become much more engaged. This debate is a very small step in that direction, and I am very grateful to its sponsors. I wish more Members were in the Chamber—I had intended to listen, not to speak—but, unfortunately, there have not been many speakers. This is a beginning, however, and I hope that we will have many more such debates.

12.55 pm

Mark Durkan (Foyle) (SDLP): I rise to endorse the very significant points made by hon. Members. In particular, I pay tribute to the hon. Member for Wycombe (Steve Baker) for securing the debate and for opening it so strongly. From hearing him speak in Public Bill Committees on banking reform and related questions, I know that he is dubious about our having almost feng shui arguments on the regulatory furniture when there are fundamental questions to be asked about the very foundations of the system. He amplified that point in his speech.

My right hon. Friend the Member for Oldham West and Royton (Mr Meacher) made the point that the whole approach to quantitative easing—several Members have questioned it at a number of levels—proves that the underlying logic of sovereign money creation is feasible and workable. It is strange that some of the people who would dispute or refute the case for sovereign money creation sometimes defend quantitative easing in its existing form and with its current features.

In many ways, quantitative easing has shown that if we are to use the facility of the state—in this situation, the state’s main tool is the Bank of England—to alter or prime the money supply in a particular way, we could choose a much better way of doing so than through quantitative easing. It is meant to have increased the money supply, but where have people felt that in terms of business credit, wages or the stimulus that consumer power can provide?

When we look back at the financial crash and its aftermath, we can see evidence—not just in the UK, but in Ireland and elsewhere—showing that much of what we were told about the worth or the wealth of various sectors in the economy up until the crash has turned out to be vacuous, while the poverty lying in its trail has been vicious. The worth or the wealth was not real, but the poverty is real. People in organisations such as Positive Money in the UK or Sensible Money in Ireland are therefore saying, rightly, that politics—those of us charged with overseeing public policy as it affects the

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economy—need to have more of a basic look at how we treat the banking system and at the very nature of money creation.

As someone who grew up in Northern Ireland, I am very used to the idea of having different banknotes—banks issuing their own money—but we do not think much about that, because we think that all that happens in the Bank of England or under its licence. As a member of the Financial Services Public Bill Committee and the Financial Services (Banking Reform) Public Bill Committee, it seems to me that although it has been recognised that some regulatory powers should go back to the Bank of England, the arrangements for regulation and the Bank of England’s role are still very cluttered.

In fact, in trying to correct the regulatory deficiencies that existed before the crash, there is a risk that we have perhaps created too many conflicting and confusing roles for the Bank of England. Given the various personages, different roles and job descriptions that attach to some of those committees, it seems to me that there is potential for clutter in the Treasury. The common denominator and reference point in the range of different committees and bodies and the things they do, is the Treasury. When the Treasury exercises its powers, influences judgments, and informs the criteria and considerations of those different committees under the Bank of England, there is not enough scrutiny or back play through Parliament.

I endorse the points made by other hon. Members about ensuring more accountability, whether through more formal reference to the Treasury Committee or some other hybrid, as suggested in an intervention on the right hon. Member for Oldham West and Royton. There should be more parliamentary insight—and definitely parliamentary oversight—on these matters. We cannot suddenly be shocked that all the confidence in various regulatory systems turned out to have been badly placed. That was our experience the last time, when people who now criticise the previous Government for not having had enough regulation were saying that there was too much regulation and calling for more deregulation.

If we in this Parliament have produced a new regulatory order, we must be prepared to face and follow through the questions that arise. It is not good enough to ensure that the issue returns to Parliament only the next time there is a crisis, when we will have to legislate again. We should do more to be on our watch. The hon. Member for Wycombe and other hon. Members who secured this debate have done us a service. We want more of a parliamentary watch window on these issues.

There is a necessary role for banks in the creation of money and quantitative easing, but we must entrust them with the right role and with the appropriate controls and disciplines. That is fundamental. It is not good or strong enough that we leave it to the whims of the banks and their lending—supposedly reinforced and stimulated by quantitative easing—to profile the performance of the economy.

If quantitative easing works on the basis of the Bank of England, through the asset purchase facility, essentially using money that it creates under quantitative easing to buy gilts from a pension fund whose bank account is with RBS—which in essence is owned by the Bank of England—then RBS’s bank account with the Bank of England goes up by the value of that gilt purchase. Simultaneously, the bank account of the pension fund

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goes up by that amount, and we are told that the UK money supply has increased. Yes, in theory the pension fund can purchase other assets—is that what is happening?—but while 1% of the big money holders and players appear to have been advantaged through quantitative easing, where is the trickledown to the rest of the economy? It is not there.

The sovereign money creation model seems to be primed much more specifically on a view of the total economy and providing a broad, stable and more balanced approach to stimulus and economic performance. We have had the slowest recovery coming out of a recession with quantitative easing. I do not say that to get some voice-activated reaction from the Government about how good the recovery and performance is, but in broader historical terms it is the slowest recovery, which also leaves questions about quantitative easing.

We heard from the Prime Minister about red warning lights on the dashboard of the world economy, and I wonder whether he would ever say that, to his mind, those warning lights include the degree to which global banks are now playing heavily in derivatives again, and there needs to be more action. That raises issues not just of regulation at national level, but at international level.

1.5 pm

Catherine McKinnell (Newcastle upon Tyne North) (Lab): I congratulate the hon. Member for Wycombe (Steve Baker) on his thoughtful and thorough opening speech, as well as my right hon. Friend the Member for Oldham West and Royton (Mr Meacher) on his remarks. In their absence I also congratulate the hon. Members for Brighton, Pavilion (Caroline Lucas) and for Clacton (Douglas Carswell) on securing today’s important debate.

This debate follows a significant campaign by Positive Money, which has raised important issues about how we ensure financial stability, and how we as parliamentarians and members of the public can gain a greater understanding of the way our economy works, in particular how money is supplied not just in this country but around the world.

Some important questions have been highlighted in the debate, although not all have been answered. There are questions about how money is created, how money or credit is used by banks and others, how our financial system can be more transparent and accountable, and particularly how it can benefit the country as a whole. That latter point is something that Labour Members have been acutely focused on. How do we re-work our economy, whether in banking or in relation to jobs and wages, so that it works for the country as a whole?

It is worth reflecting on our current system and what it means for money creation. As the hon. Member for Wycombe set out eloquently in his opening speech, we know that currency is created in the conventional sense of being printed by the Bank of England, but commercial banks can create money through account holders depositing money in their accounts, or by issuing loans to borrowers. That obviously increases the amount of money available to borrowers and within the wider economy. As the Bank of England made clear in an article accompanying its first quarterly bulletin in 2014:

“When a bank makes a loan to one of its customers it simply credits the customer’s account with a higher deposit balance. At that instant, new money is created.”

Bank loans and deposits are essentially IOUs from banks, and therefore a form of money creation.

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Commercial banks do not have unlimited ability to create money, and monetary policy, financial stability and regulation all influence the amount of money they can create. In that sense, banks are regulated by the Prudential Regulation Authority, part of the Bank of England, and the Financial Conduct Authority. Those regulators, some of which are—rightly—independent, are the stewards of “safety and soundness” in financial institutions, especially regarding banks’ money-creating practices.

Banks are compelled to manage the liabilities on their balance sheets to ensure that they have capital and longer-term liabilities precisely to mitigate risks and prevent them from effectively having a licence to print money. Banks must adhere to a leverage ratio—the limit on their balance sheets, compared with the actual equity or capital they hold—and we strongly support that. Limiting a bank’s balance sheet limits the amount of money it can create through lending or deposits. There are a series of checks and balances in place when it comes to creating money, some of which the Opposition strongly supported when we debated legislative changes in recent years. It remains our view that the central issue, the instability of money supply within the banking system, is less to do with the powers banks hold and how they create money than with how they conduct themselves and whether they act in the public interest in other ways too.

We believe the issues relate to the incentives in place for banks to ensure that loans and debts are repaid, and granted only when there is a strong likelihood of repayment. When the money supply increases rapidly with no certainty of repayment, that is when real risks emerge in the economy. Those issues were debated at great length when the Financial Services (Banking Reform) Act 2013 made its way through Parliament, following recommendations from Sir John Vickers’ Independent Commission on Banking and the Parliamentary Commission on Banking Standards, which considered professional standards and culture in the industry. The 2013 Act created the Prudential Regulation Authority and gives regulators the power to split up banks to safeguard their future, to name just two examples of changes that were made. However, we feel that it did not go far enough.

The Opposition’s concern is that the Government’s actions to date in this area have fallen short of the mark. They have failed to boost sufficient competition in the banking industry to raise those standards and to create public confidence in the sector. As hon. Members with an interest in this area know, we tabled a number of amendments to try to strengthen the Bill, and to prevent banks from overreaching themselves and taking greater risks, by ensuring that the leverage ratio is effective. That goes to the heart of many of the issues we are debating today. The Government rejected our proposals to impose on all those working in the banking industry a duty of care to customers. That would help to reform banking so that it works in the interests of customers and the economy, and not solely those of the banks. Those are the areas on which we still feel that reform is needed in the sector.

It is clear from this debate that there is a whole range of issues to consider, but our focus is that the banks need to be tightly and correctly regulated to ensure that they work for the whole economy, including individuals

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and small and large businesses. That is the key issue that we face at present. Only when the banks operate in that way and work in the interests of the whole economy will we find our way out of the cost of living crisis that so many people are facing.

I thank hon. Members for securing this very important debate and for the very interesting contributions that have been made from all sides of the House. I am pretty certain that this is not the end of the conversation. The debate will go on.

1.12 pm

The Economic Secretary to the Treasury (Andrea Leadsom): I too congratulate hon. Members on securing this fascinating debate. It is long overdue and has allowed us to consider not just what more we can do to improve what we have but whether we should be throwing it away and starting again. I genuinely welcome the debate and hope that many more will follow. In particular, I pay tribute to my hon. Friend the Member for Wycombe (Steve Baker), who now sits on the Treasury Committee on which I had the great honour to serve for four years. I am sure that his challenge to orthodoxy will have been extremely welcomed by the Committee and by many others. I wish him good luck on that.

Steve Baker: May I just say how much I am enjoying my hon. Friend’s place on the Committee? I congratulate her on her promotion once again.

Andrea Leadsom: I am grateful to my hon. Friend.

My right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) gave a fantastic explanation that I would commend to anybody who wants to understand how money is created. He might consider delivering it under the financial education curriculum in schools. It was very enlightening, not least because it highlighted the appalling failure of regulation in the run-up to the financial crisis that is still reverberating in our economy today. All hon. Members made interesting points on what we can do better and whether we should be thinking again. I pay tribute to the right hon. Member for Oldham West and Royton (Mr Meacher) for his good explanation of the Positive Money agenda, which is certainly an idea worthy of thought and I will come on to it.

Money creation is an important and complex aspect of our economy that I agree is often misunderstood. I would therefore like quickly to set out how the system works. The money held by households and companies takes two forms: currency, which is banknotes and coins, and bank deposits. The vast majority, as my hon. Friend pointed out, is in the form of bank deposits. He is absolutely right to say that bank deposits are primarily created by commercial banks themselves each time they make a loan. Whenever a bank makes a loan, it credits the borrower’s bank account with a new deposit and that creates “new money”. However, there are limits to how much new money is created at any point in time. When a bank makes a loan, it does so in the expectation that the loan will be repaid in the future—households repay their mortgages out of their salaries; businesses repay their loans out of income from their investments.

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In other words, banks will not create new money unless they think that new value will also in due course be created, enabling that loan to be paid back.

Ultimately, money creation depends on the policies of the Bank of England. Changes to the bank rate affect market interest rates and, in turn, the saving and borrowing decisions of households and businesses. Prudential regulation is used if excessive risk-taking or asset price bubbles are creating excessive lending. Those checks and balances are an integral part of the system.

I agree fully that the regulatory system was totally unfit in the run-up to the financial crisis. We saw risky behaviour, excessive lending and a general lack of restraint on all sides. The key problem was that the buck did not stop anywhere. When there were problems in the banking system, regulators looked at each other for who was responsible. We all know that the outcome was the financial crisis of 2008. I, too, see the financial crisis as a prime example of why we need not just change but a better banking culture: a culture where people do not spend their time thinking about how to get around the rules; a culture where there is no tension between what is good for the firm and what is good for the customer; and a culture where infringements of the rules are properly and seriously dealt with.

I will touch on what we are doing to change the regulations and the culture, but first I will set out why we do not believe that the right solution is the wholesale replacement of the current system by something else, such as a sovereign monetary system. Under a sovereign monetary system, it would be the state, not banks, that creates new money. The central bank, via a committee, would decide how much money is created and this money would mostly be transferred to the Government. Lending would come from the pool of customers’ investment account deposits held by commercial banks.

Such a system would raise a number of very important questions. How would that committee assess how much money should be created to meet the inflation target and support the economy? If the central bank had the power to finance the Government’s policies, what would the implications be for the credibility of the fiscal framework and the Government’s ability to borrow from the market if they needed to? What would be the impact on the availability of credit for businesses and households? Would not credit become pro-cyclical? Would we not incentivise financing households over businesses, because for businesses, banks would presumably expect the state to step in? Would we not be encouraging the emergence of an unregulated set of new shadow banks? Would not the introduction of a totally new system, untested across modern advanced economies, create unnecessary risk at a time when people need stability?

Steve Baker: I do not actually support Positive Money’s proposals, although I am glad to work with it because I support its diagnosis of the problem. Of course, this argument could have been advanced in 1844 and it was not. I have not proposed throwing away the system and doing something radically new; I have proposed getting rid of all the obstacles to the free market creating alternative currencies.

Andrea Leadsom: I am grateful to my hon. Friend for pointing that out. I must confess that before the debate I was puzzled that such an intelligent and extremely

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sensible person should be making the case for a sovereign monetary system, which I would consider to be an extraordinarily state-interventionist proposal. I am glad to hear that is not the case. In addition, of course, bearing in mind our current set of regulators, presumably we would then be looking at a committee of middle-aged, white men deciding what the economy needs, which would also be of significant concern to me.

Mr Meacher: Before the Minister leaves the question of a sovereign monetary system, which she obviously totally opposes and to which she raised several objections that I cannot answer in an intervention, does she not believe that the system of bank money creation is highly pro-cyclical and has enormously benefited property and financial sectors to the disadvantage of the vast range of industries outside the financial sector?

Andrea Leadsom: As I said, I sincerely congratulate the right hon. Gentleman on raising this matter; it is certainly worthy of discussion, and I look forward to him responding to some of my arguments. I agree that where we were in the run-up to the financial crisis was entirely inappropriate, and I will come to some of the steps we have taken to improve—not throw away the baby with the bathwater—what we have now, rather than throwing it away and starting again.

I know that some of my hon. Friends and Opposition Members have a particular concern about quantitative easing—I have made it clear that I do too—specifically about how we might unwind it. However, they must agree that at least it can be unwound, unlike the proposal for “helicopter money”, which would seem to be a giant step beyond QE—a step where money would be created by the state with no obvious way to rein it back if necessary.

If the tap in my bathroom breaks, rather than wrenching the sink off the wall, I would prefer to fix the tap. As Martin Wolf said last week,

“nobody can say with confidence” how a monetary system should be structured and what laws and regulations it should have. Given that and the economic tumult across the world, we should be devoting our energies to fixing the system we have—mending the problems but keeping what works. For that reason, the Government have taken significant steps to improve the banking sector, making sure it fulfils its core purpose of keeping the wheels of the economy well oiled.

We are creating a better, safer financial system, with the Financial Policy Committee, created in this Parliament, focused on macro-prudential analysis and action. As the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) pointed out, the FPC has been given counter-cyclical tools to require more capital to be held and to increase the leverage ratio and the counter-cyclical capital buffers when the economy is over-exuberant in order to push back against it—as the previous Governor of the Bank of England said, to remove the punch bowl while the party is still in full flow. That is incredibly important. We are also reducing dependence on debt. Since the financial crisis, the UK banking system has been forced significantly to strengthen its capital and liquidity position, and it is continuing to do so.

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I must stress, however, that regulation alone will never be enough, which is why the Government are promoting choice, competition and diversity. I am delighted that 25 new banks are talking to the Prudential Regulatory Authority about getting a bank licence. We are also making strong efforts to promote the mutual sector; to enhance the capacity of credit unions to serve the real economy better; to enable booster funding for small businesses; to help families; and to improve customer service. We have put in place schemes to help the transmission of money from banks to customers, including the funding for lending scheme, which has lowered the price and increased the availability of credit for small and medium-sized businesses. As I think the hon. Member for Newcastle upon Tyne North said, we have also created the British business bank, which is helping finance markets work better for small firms, and are investing much resource and effort to build that up and help businesses in our economy.

We also have a programme of measures to increase competition in the SME lending market, including flagship proposals to open up access to SME credit information, which will help challengers to get in on the act, and to have banks pass on declined applications for finance to challenger banks. In addition, we now have an appeals process whereby small businesses turned down for funding can get a second chance, which has secured an additional £42 million of lending since its launch. These are all measures to help small businesses access finance. Then, to mitigate the problem of house price bubbles, we are putting in place supply-side reforms to promote home building and home owning, as well as measures enabling the PRA to limit the amount of lending that households can take on.

I agree with Members on both sides of the House, however, that we should not be content with the system as it stands. We must seek to improve it and make it function better. In Mark Carney, we have an excellent central banker who has the experience and knowledge to put the right reforms in place and see them through. As he says:

“Reform should stop only when industry and society are content, and finance justifiably proud.”

In the medium to long term, we need to create a culture where research and analysis do not shy away from going against the orthodoxy. As hon. Members across the House have said, we need to consider alternatives, and we should be having that discussion; it is healthy to do so, because that is how to make progress. For that reason, the call from Andy Haldane, the Deputy Governor of the Bank of England, for a broader look at new and existing monetary ideas is exactly right.

Mr Meacher: I am pleased the Minister thinks that alternative ways of improving the monetary system should be explored. Will she support the idea of a setting up a commission to examine the alternatives, as recommended by the hon. Member for Richmond Park (Zac Goldsmith), as well as by me—so there is some cross-part support on this? Is that not an idea whose time has come?

Andrea Leadsom: I think that an organisation such as the Treasury Committee, of which my hon. Friend the Member for Wycombe is member, would be entirely the right place to have such a discussion, and of course we

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also had the Vickers commission, which looked at what went wrong and what measures could be put in place, and the Parliamentary Commission on Banking Standards, which specifically addressed the issue of incentives and motivations in banking. I would not normally advocate the establishment of great new commissions; we already have the bodies to look further at different orthodoxies, and as Andy Haldane has said, the Bank itself will be looking at, and encouraging, the exploration of alternative views.

Of course, we also need to continue embracing innovation, both in the “software” of how payments are made and in the “hardware” of new currencies, such as crypto-currencies and digital currencies—both could open up competition and give customers greater choice and access to funding—but we must do so with caution. In November, we published a call for information inviting views and evidence on the benefits and risks of digital currencies so that digital currency businesses can continue to set up in the UK and people can expect to use them safely.

I am the last person who could be described as statist, but I accept that we must always be ruthless in our determination to regulate new ideas that come to the fore, because as sure as night follows day, as new ideas come in, through shadow banking, new lending ideas and so on, some people will seek to manipulate new schemes and currencies for fraudulent purposes. I am absolutely alive to that fact. It is important, therefore, that the Government carry out the necessary research.

The Government believe that the current system, modified and improved with far greater competition, can service the economy best. However, reform is vital. Again as Andy Haldane puts it:

“Historically, flexing policy frameworks has often been taken as a sign of regime failure. Quite the opposite ought to be the case”.

We need banks to lend—to young families wanting to buy houses and repay out of future labour income rather than relying on the bank of mum and dad, and to businesses wanting to seize opportunities, gain new markets and create jobs and growth. We have an existing system that offers a forward-looking and dynamic framework in which tomorrow’s opportunities are not wholly reliant on yesterday’s savings and which builds on banks’ expertise in assessing risk and making the lending decisions we badly need. During my 25 years at

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the heart of the industry, I saw the sector at its best, but sometimes sadly also at its worst. We are trying to remedy the worst, but let us also keep the best.

1.29 pm

Steve Baker: This debate has been a joy at times, and I am extremely grateful to right hon. and hon. Members who helped me to secure it. The right hon. Member for Oldham West and Royton (Mr Meacher) made clear his support for sovereign money. One of the great advantages of such a system is that it would make explicit what is currently hidden—that it is the state that is trying to steer the monetary system—and if such a system failed, it would at least be clear that it was a centrally planned monetary order that had failed.

The hon. Member for Clacton (Douglas Carswell) talked about the ownership of deposits, and I was glad to support his private Member’s Bill. I am reminded of the intervention from the hon. Member for Hackney North and Stoke Newington (Ms Abbott), who talked about deposit insurance. One of the problems, as seen in Cyprus in the context of depositor “bail-ins”, is that deposits are akin to a share in a risky investment vehicle, so a little more clarity about what a deposit means and what risks depositors take could go a long way.

My right hon. Friend the Member for Hitchin and Harpenden (Mr Lilley) highlighted one of the greatest controversies among free marketeers—whether or not fractional reserve deposit taking is legitimate.

The hon. Member for Great Grimsby (Austin Mitchell) mentioned Major Douglas, which he will have seen put a smile on my face. Major Douglas was dismissed as a crank, even by Keynes who dismissed him in his writing as a “private”. This highlights the fact that the possible range of debate is enormous.

I would like to leave my final words with Richard Cobden, the Member representing Stockport back in the time when this was also a big issue. He said:

“I hold all idea of regulating the currency to be an absurdity; the very terms of regulating the currency…I look upon to be an absurdity”.

The currency, for him,

“should be regulated by the trade and commerce of the world.”

I wholeheartedly agree.

 

 

Question put and agreed to.

Resolved,

That this House has considered money creation and society.

[ENDS]

 

Transcript on ‘They work for you’ 

 

 

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  • dannyboy

    The debate was really very good until Andrea Leadson stood up. She said everything you would expect from someone in the pay of the finance industry and epitomises the problem with the current government and their close ties to finance. Especially disingenuous was her attempt to win “feminist” brownie points talking about how an MPC would be full of old, white men. How many bank CEOs fall outside of that demographic I wonder? Read her bio in wikipedia for more information:

    http://en.wikipedia.org/wiki/Andrea_Leadsom

    I can’t imagine anyone more compromised by financial industry corruption than this woman and it is no surprise that the thrust of her contribution to the debate was that we shouldn’t consider replacing the current monetary system. Turkeys don’t vote for Christmas!

    • plainmoney

      Andrea Leadsom’s phrase was, as I recall, “middle-aged, white men.”
      Glibly ageist, racist and sexist. Tut tut.

    • PJM

      Reading Andrea Leadsom’s bio in Wikipedia reinforced for me the need to drastically change the rules on political donations, to ensure that:
      1. Only real people can make political donations, i.e. it would be illegal for companies, trusts, etc. to make political donations.
      2. No political donation is tax deductible.
      3. All political donations must be made with complete transparency, being published on the Internet within 24 hours of being made.

      • Peter

        For the record, the Wikipedia article says of Andrea Leadsom

        “Following her appointment, it was discovered that she had placed her shares in a buy-to-let property company, which she had started with her husband in 2003, into trusts for the benefit of her children. This is a move that is commonly used to avoid inheritance tax. She also took advantage of offshore banking arrangements for the property company in an apparent contradiction to George Osborne’s attempts to crack down on tax avoidance.[10] A spokesperson for Leadsom said: “This is a normal corporate situation and all tax that is due is being paid. None of the loans for the properties are based offshore”.

        There was further criticism when it was revealed that she had received a series of donations totalling £70,000 from a firm based in London but owned by her Guernsey-based brother-in-law, Peter de Putron, via a holding company in the British Virgin Islands tax haven.[11] Leadsom’s husband Ben is a director of the firm which made the donations, which were used to pay the salaries of staff in Leadsom’s Westminster office after her election as MP; the firm has also made donations of £816,000 to the Conservative party.[12] Because the firm making the donations, Gloucester Research (later becoming GR Software and Research) was based in London the donations conformed to the rule banning political donations from abroad. The Labour MP Tom Watson said: “These very large donations might be within the rules, but it certainly isn’t right that a Treasury minister has been taking money in this way. Most reasonable people will see this as completely unreasonable”.[11]”

    • RJ

      PM is doing good work. But you will not change the current system. And its not as bad as many think

      In fact I believe the current system that the UK has is a million times better than Euro countries. Only ignorance about Govt debt stop the people getting exactly what they want. And allows a few to control all the wealth. So its education that’s needed not big (or any) changes

      The danger is that small (or too small) Govt deficits will destroy countries. It’s the main reason we are not entering a period of abundance and prosperity due to technology improvement. But the majority and corrupt or stupid politicians have let this happen.

      • joebhed

        “”Only ignorance about Govt debt stop the people getting exactly what they want.””

        Perhaps you meant the people’s ignorance of the fact that national public debt is unnecessary in a sovereign fiat system. I hope so.

        Because I do agree that the people’s ignorance of that fact is what
        “”stop the people getting exactly what they want. And allows a few to control all the wealth.””

        It’s all about who creates the money.

        http://youtu.be/2HRt6sSXpOQ

        • RJ

          This is an example of (maybe deliberate) misinformation. The private banks do NOT lend money to the UK Govt. And the rest of this is just mostly rubbish. But the problem is that good people see these videos and believe that’s its factual. And consequently do not get to see the real facts. Regarding monetary sovereignty.

          • averagejoe

            The key flaw with the current system is the ability of
            private banks to create money, which then leads to asset bubbles, financial
            instability, and the need for perpetual growth in debt to prevent
            deflation. This requires never ending
            growth, in a world of finite resources.
            The system as it stands it simply not sustainable. We can debate endlessly over whether or not
            Positive Money is the best solution, but the end of the day, it’s just one
            proposal to overcome these flaws. And it
            is these flaws that must be addressed, one way or another, otherwise we face
            one financial crisis after another as we move forward. I’m not bother about which solution is
            chosen, so long as it overcomes the current flaws. It should be noted that the financial system
            does not create wealth, it creates debt.
            And the real wealth generating side of the economy must carry this
            debt. The financial system, should be as
            small as we can get away with, so as to not unnecessarily burden the wealth generating
            economy. If it gets too bug, then the economy tanks into debt deflation. I think we are close to this point.

          • Harry White

            This might interest you averagejoe
            In slightly different ways a number of sources, including
            Positive Money, describe the extractive nature of our money creation system that has been made the privilege of commercial banks. That, due to the structure of the system, wealth from all those producing real goods and providing essential services is systemicall transferred to a small elite at the apex of the Financial Sector.

            Recently, I stumbled on a video by Damon Vravel entitled ‘How the World really is’ http://www.youtube.com/watch?v=7_yh4-Zi92Q
            It comprises 5 lessons providing some disturbing insights.

            I was particularly taken by his explanation of the socially
            destructive effect of the extractive nature of the current money creation system based on comparing balance sheets. This I interpreted as follows:-

            ‘A balance sheet measures the economic health of an
            individual, company or country by comparing ASSETS (wealth) that bestows power against LIABILITIES (debt) which means lack of power. Countries, real goods and essential services producing companies and individuals have to pay compound interest (a rent) to the RENTIER BANKS for the money, that they require as an
            essential utility, to the banks that create it.

            This means that the ultimate senior capital holders of the
            financial sector, which includes the banks, supported by highly rewarded economists, corporate lawyers, accountants, traders and complex derivative designers HAVE EXPONENTIALLY INCREASING ASSETS AND ASSOCIATED POWER whilst thecountry, productive businesses and individuals have EXPONENTIALLY INCREASING
            LIABILITIES AND DECREASING POWER

            The financial sector is sucking wealth from its host – the
            real productive sector and because of this power shift usurps democratic government by having greater economic power than elected governments.’

          • joebhed

            averagejoe, my Dad, another joe, used to always say that fixing the money system will not fix the environment or bring peace, but that you can’t fix them without monetary reform. It is enabling. What it will cause remains to be seen. Up to us.

            PM points clearly to the savings of resource demands by ending debt-based money, but the real science behind the sustainability-limiting balancing between natural resources and human needs has been laid out by Dr. Frederick Soddy.

            Soddy shows that essential relationship that does and must exist between the money system and our sustainability needs and goals in his book titled : “The Role of Money”.

            http://archive.org/stream/roleofmoney032861mbp/roleofmoney032861mbp_djvu.txt

            All of the modern monetary science that Turner, Wolf, Benes and Kumhof of the IMF and others have brought forward recently are originally based on the ideas of Soddy, as developed through Simons, Fisher and even Friedman, who was a sovereign fiat money system supporter. They are all based on Soddy.

            The Money System Common is based on Soddy’s money-science views, where our sustainable natural resource limits define the maximum wealth available for distribution, which takes place through the money system.

            The Money System Common.

          • fibo34

            The Central Banks do. And they are privately owned institutions

          • joebhed

            Our US central bank is privately owned but the BoE’s stock is publicly owned.
            While either may ‘purchase’ or sell public debt in the open market for monetary policy purposes, neither of them lend money to the government.
            The CB open market purchase and sale of public debt , however, NEVER funds the government directly.

          • RJ

            “Our US central bank is privately owned”. A totally misleading statement

          • joebhed

            Do you do anything else besides making vacuous claims that contain the word ‘misleading’?
            The Regional Federal Reserve Bank of New York is a private bankcorporation whose stock belong to its owner-member private banks, every one of which is a profit-making private bankcorporation.
            Our US central bank is privately owned.
            Nothing ‘misleading’ about that at all.
            Seems to afflict the eye of the beholder.

          • RJ

            The Feds profit is returned to the treasury (as you must know). And the Govt makes the key appointments at the Fed.

            “Janet Yellen nominated by Obama to be head of US Federal …”

            Its as good as a Govt department. But you must know this. So why do you post these misleading statements.

          • joebhed

            There’s that ‘misleading’ charge again.
            What part was misleading?
            Nothing, except this.
            “Its as good as a Govt department.” LOL.
            So, FRBNY is a private bankcorporation, you agree, yet claim it is as good as the Guv.
            How so? Any evidence? Any Guv employees, or public policies in play? Or, empty stylizing the reality?

            What makes the central bankcorporation FRBNY a private entity, and the entire FRBS ‘private’ , is the ownership and control of the entity, and who gains the profits from FRBS’ operations.
            It’s all private property, operated for private gain.
            Nothing governmental about it.

            The operations of the FRBS, is money creation by issuing debts.
            All of the net income from money creation (interest income from the debts issued) is totally private bankcorporation swag, useful when buying the politicians.

            Your claim that ‘profits’ of the Fed (being what?) is ‘returned’ to the Treasury lacks a certain clarity that can lead to a misunderstanding.
            So, let’s correct that.
            That its ‘net income’ returns to the Treasury is correct. But that is only because it is an unearned gain by the FR banks in carrying out their role as Regional regulator.
            So, the private Fed system gives back what it took from the taxpayers, through the Treasuries’ interest payments.
            Not a big deal, really, and not even close to any legal requirement.

            This ‘arrangement’ might fool some into thinking that the Fed is like the government, a complete falsity except insofar as they have usurped the government’s supreme prerogative for public betterment – seigniorage gained from public money creation.

            Back in the day, under threat from the Banking and Currency Committee to legislate that net income MUST be returned to the taxpayers, the BoG’s adopted a Board Policy to effect the change.
            So, it’s not a law, not required, just a Board Policy.
            Can be undone by the BoG’s at any time.
            This control by the bankers, and not the Guv, can be seen in the FACT that Interest On Reserve(IOR) payments(Fed to Depository Institutions….. plus) reduce the net income payments to the Treasury. In other words, taxpayer monies are purloined by the private CB to pay the bankers interest on the reserves .
            Who in Guv approved of that?

            Shoehorning.
            And stylizing.
            Do not good public policy make.

          • RJ

            “the Federal Reserve System has been paying its profits to the Treasury since 1947″

            This is factual. So the treasury receives the profits from the Fed. And the Govt appoints the top man/ woman. In effect the Fed is as good as Govt owned and controlled. And anyone who claims otherwise is living in a make pretend world.

          • joebhed

            MMT-speak dialogue.
            “ignorant”, “misinformation”, “make-pretend world” accusations,
            while using the PRIVATE Fed’s descriptions of itself, or the BoGs dot.com identity to prove something that is clearly false.

            I believe in that previous DR article I pointed out the central banks website as being non-governmental at all. Google the Federal Reserve Bank of New York…. Our private central bank…..
            http://www.ny.frb.org

            You will find the exact same dot-org designation for all 12 Regional Fed banks. Why are they not .gov designated if they are in fact Guv?
            Gawd.

            From the central bank’s National Register page:

            Location: 33 Liberty Street Manhattan, New York City
            Built: 1919-24, 1935 (eastern extension)
            Architect: York and Sawyer
            Architectural style : Florentine Renaissance
            Governing body : Private
            NRHP Reference # : 80002688
            Significant dates
            Added to NRHP: May 6, 1980

            Designated NYCL December 21, 1965

            So, on their application for recognition circa 1980, FRBNY says it is
            governance is private.

            I have already explained that the ‘profits’ of the entire FRB ‘system’ operations remain with the private bank-corporate Member-Owners of the SYSTEM and that the repayment TO Treasury of Treasury’s previous payments to the FR Banks is not a transfer of banking system ‘profits’ at all.

            No FR Member bank pays one cent of its profits back to Treasury.

            Those monies that ARE transferred are unearned gains from monetary policy operations, and not banking operations.

            It was thus that House Currency and Banking Committee proposed
            legislation “requiring” their return, and this legal remedy was only prevented due to the BoG Policy statement adopted at that time.

            But this is ALL really silly shite.
            The real question that should be apparent to any PM reader is WHY are we even discussing this? Why does MMT claim that the private FR Banking System is governmental? As this is a perennially arguable issue, why is it important to MMT to continue to add more
            fog around the money system on this point?

            This is a waste of time, space and keyboarding because whatever you believe does not change the accepted facts of who creates the nation’s money(private banks), and how that is done (debt-issuance)….. both of which do impact the unnecessary
            debt-induced suffering of the m asses, and the maintenance of the Status Quo BY the One Percent.
            For some reason, this is the system that MMT wants to preserve.

            Your incessant cranking on this innocuous point serves no purpose.
            The Bank of England is publicly owned, but the problem of private
            money-creation remains.
            Were we to bow down on ‘ownership’, which we do not, bringing the Fed under Treasury is only one of three important points of systemic money reform.
            (But, I presume a point with which MMT would agree, no?))

            The other two legs of the reform stool are to end fractional-reserve banking – whereby the private bankers create all the money (c.e.),, and also to empower the government to create and issue all money for public purposes.
            (Again this seems like something MMT would support, given they claim it happens now, somehow)

            Why are we not discussing these reforms here on the PM Blog?

          • RJ

            We’ve posted enough on the Fed. This is the UK. And generally this discussion has now become a bit pointless. We don’t agree and likely never will.

          • joebhed

            Yes, I agree. Been saying that it’s been pointless all along.
            What about monetary reform?

          • ConradJones

            From the Federal Reserve website:

            “The 12 regional Federal Reserve Banks, which were established by the Congress as the operating arms of the nation’s central banking system, are organized similarly to private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year. ”

            http://www.federalreserve.gov/faqs/about_14986.htm

            Interestingly, all Governors of the Federal Reserve seem to be members of the Council on Foreign Relations – whatever that is.

            You’ll never guess who Audits the FED – the same firm who audited RBS before they crashed and burnt and then got a bailout from the Government.

            http://www.federalreserve.gov/publications/annual-report/default.htm

            Click on: http://www.federalreserve.gov/publications/annual-report/files/2012-annual-report.pdf

            Search for: “Auditor” and keep searching all instances

            “The financial statements of the Board of Governors for 2012 and 2011 were audited by Deloitte & Touche LLP, independent auditors.”

          • joebhed

            Correcting misinformation so as to have better Informed opinion would best be served by stating clearly what part is misinforming and what would replace that mis-information. While this is obviously a US-centric video, the whole truth of the video is that sovereign governments have the inherent sovereign right to create the nation’s money, both in the US and the UK.
            And both governments have given that money-creation power to the private bankers. That much cannot be controvertible.
            Governments without money-creation and issuance powers must fund ‘deficits’ by borrowing money that is created and issued by the private banks that have that issuing power.
            Whether they do it directly, or through any intermediary is inconsequential to the message of the video, which is that this is inane if not insane, and an immoral insult to the taxpayers who lose BOTH the seigniorage gain from money issuance, AND the taxes collected by government to pay both the interest and the principal to the holders of their public debt.
            There is nothing in this video that is not factual.
            I did not make this video, but it is my voice and message.

            Your point that the Euro countries are not sovereign with money is unfortunately your error. Monetary sovereignty NEVER leaves a nation, only autonomy can, which is what the Europeans in the Monetary Union gave up.
            With sovereignty, they can take back their monetary autonomy with a single sovereign vote.
            .
            BTW, what would your ‘real facts’ be, please.

            Thanks.

          • RJ

            “Governments without money-creation and issuance powers must fund ‘deficits’ by borrowing money”
            This is wrong for a start. The UK Govt funds spending by issuing new BoE reserves (reserves are the treasuries and banks money. Reserves are used for the banks and treasury to settle with each other like we mostly use bank credit). The treasury then drain these reserves (it was to achieve a desired interest rate on reserves) by issuing bonds (that people call borrowing money). But QE simple reverses this process (where the bonds are bought back and exchanged for reserves) So the UK Govt can if they wish fund a deficit using reserves (this could be called sovereign money.)
            I suggest you read Warren Mosler’s The 7 deadly innocent Frauds. And stop treating a monetary sovereign Govt like a household.

          • joebhed

            The First Deadly Innocent Fraud is Warren Mosler’s. I proved that in a video I am glad to post.

            I have followed MMT for many years and it is deeply flawed largely because it was developed by banker Mosler’s foundational views as you have expressed here, but you and he are mistaken. It is not possible for Mosler to fault the banking system that made him millions.
            I support the benefit that Warren enjoys from his smart ‘banking system’ views. But his efforts, and yours, to put MMT forward as some new and worthwhile idea is seriously in error.
            What, pray tell, does MMT propose to accomplish? Nothing.
            It feigns a value-less but new understanding of the Status Quo.
            I hope you’ve read Dr. Marc Lavoie’s friendly critique of MMT, or that done by the American Monetary Institute, or perhaps the analysis of Dr. Joseph Huber, of sovereignmoney.eu . His work in the Journal of the Real World Economics Review can be found here.

            http://www.paecon.net/PAEReview/issue66/Huber66.pdf

            I have studied the money system enough to know that anyone discussing “the money power” as we are discussing that here, and who moves the discussion to behind the central bank’s balance sheet (an accounting versus a political science discussion) is more charlatan than chartalist, who never went there.

            It’s OUR money system.
            And we want it back.
            From the bankers.
            Tell Warren I said so.

          • RJ

            MMT is based on facts. It is not deeply flawed. But rather than address any point that you believe is deeply flawed and explain why. You make this silly statement “it was developed by banker Mosler’s …”

          • joebhed

            MMT is based on facts? Rather than address its deeply flawed points???
            Not really here to debate MMT, as I have for many years after attending their Fiscal Responsibility Counter Conference almost five years ago.
            MMT facts? Sorry, a fools errand that. For instance of MMT-speak….
            “”The government is the monopoly issuer of the currency.””
            How’s that for an egregious and misleading lie?
            We all here know it is the banks that create and issue the currency.

            But MMT shoehorns its misunderstandings into a ‘theoretical’ structure, based very loosely on Lerner’s Functional Finance construct, that many without a ‘money system’ foundation find endearing because it ostensibly supports the JG.
            However, it is, in reality, not related to the JG at all.
            We all support the JG, or GBI, buy MMT does absolutely nothing for either.
            I know all about MMT, and will address any point that you care to make.
            But this distracts from the Positive Money proposal, far, far superior to MMT.

          • RJ

            The key to MMT is explaining how the CURRENT treasury payments system operates. To held removed flawed beliefs held by many. Including many economists and well meaning people like who read PM . Solutions can then be developed based on this factual understanding. Because until these flawed beliefs are swept away. Solutions will be either flawed or limited.

          • joebhed

            Were I to give in to your premise……. that MMT’s “key” is in explaining the Treasury’s Payments System……. which I do not, the matter advancing to the fore would be ……. WGAS?
            Even if you were successful in removing ‘flawed’ beliefs about the Treasury Payments System (what would they be, actually?) , why would we care about this theory? What can a correct theory of the Treasury Payments System do for the problems that the world is facing today?
            Austerity, joblessness, loss of public services and massive and unpayable debts, for instance?
            The answer is nothing.
            SO, of what would this mysterious ‘factual understanding’ be availing in the way of public policy?
            But, please, first, so that we can properly appreciate MMT’s ‘factual understanding’, what are the ‘flawed beliefs’ that need to be swept away?
            Can’t wait.

          • RJ

            And your paecon extract AGREE with a key point that MMT economists make. But then brings up the old inflation and currency depreciation point. That MMT addresses in depth.

            “Wray contends that ‘for a sovereign nation, ‘affordability’ is not an issue; it spends by crediting bank accounts with its own IOUs, something it can never run out of. This is not totally unfounded, but overshooting the mark by far. p54″
            So you can hold onto your flawed beliefs. Or let them go and see the banking / treasury payments system as it is today. Where monetary sovereign Govt’s like the UK and US (but not Euro countries) already have all the power they need.

          • joebhed

            Dera RJ,
            Just ANOTHER egregious MMT error of Dr. Wray….. among his many.
            Perhaps you believe what you quoted.
            To be clear,
            The Sovereign DOES NOT, EVER, spend by crediting bank accounts with its own IOUs that it cannot run out of.
            First, the Sovereign can only spend when it has banker credits in its accounts, which it CAN run out of, not the credits of the government itself, which it never issues.
            We all spend by sending credits to our payees.
            I have both of Wray’s significant books, and they are error-filled and misleading.
            Wray acknowledges his use of ‘stylizing; the reality of the day, which is where you get that alleged Tsy-CB partnership.
            One is a borrower. One a lender.
            Get the picture?

            Bring it, RJ, if you care to waste the time of readers on the non-solution of MMT…… a non-solution I discussed with Ben Dyson years ago at the AMI conference.

          • RJ

            This statement is totally and utterly and completely wrong
            “The Sovereign DOES NOT, EVER, spend by crediting bank accounts with its own IOUs that it cannot run out of.”
            And why did you post a paecon article that DISAGREES with you on this exact point. Admit it you are wrong. I know it will be hard tp put aside you strongly held beliefs. But this you must do. Or you and people who hold similar FLAWED beliefs like you will (and have already) done many in the UK/US great harm. Due to ignorance and / or stubbonness.

          • joebhed

            First, there is nothing in the Huber article on MMT that disagrees with anything I said. You have the obligation to say what it was because wrong conclusions often result from misunderstandings, which we should try to remove from the discussion.
            Your offensive tone throughout and making a claim that something is ‘totally, and utterly and completely wrong’, and then not showing what was wrong or why something else was right.
            I will get back to that, working my way back from the end of your ‘comment’.
            The Treasury payment system, and how it works ……… being only relevant to the matter of whether, when it is working, the Treasury is creating its own monetary credits in the banking system, or whether it is using the bankers’ money system credits, which happen to be in its TGA, just like the rest of us use our bank accounts.

            Does the sovereign government of either the US or the UK create new money by spending? Now. Today.
            Because if they do, somebody needs to inform Lord Adair Turner, the former Chief of the UK’s Financial Services Authority, who is eagerly advancing the idea around the globe and through the Volcker Group of Thirty that the government should, and must, issue debt-free money into circulation on a grand scale if we are to get out of this mess.
            Also Financial Times economist-columnist Martin Wolf, who is also calling for the same.
            So, your addition to the discussion is to show whether, and how, the sovereign government creates new money by spending.
            Lighten up.
            You ain’t as smart as you think you are.

            So we will have a discussion of money creation while you delve into the realm of bank reserves.

            Given the broadside, it’s hard to know where to begin.

          • RJ

            Once again more misinformation from you. What Lord Turner said was
            http://bsd.wpengine.com/2014/06/20208/
            [T]he Treasury and the Bank of England should announce that around £50bn
            of the £375bn of government bonds that the central bank has acquired as
            part of its monetary stimulus programme will never be sold back to the
            financial markets.
            What this means is bonds paying interest (earning income for pension funds etc) will be replaced with bonds not paying interest. So bonds paying interest that will never be repaid IN TOTAL will be replaced with bonds not paying interest. Its a crazy idea for the non Govt sector as it removes income from the economy. Yes it will reduce the Govt deficit but so what
            Its like a worker suggesting that a owner with unlimited money (which is what the UK Govt is) is PAID LESS.

          • Fran Griffiths

            RJ, you are quite wrong to say that the bonds acquired by the BofE in the QE process yield interest for the private sector at the moment. Interest on bonds is always paid to the owner of those bonds. The BofE has bought those bonds so the BofE gets the interest payments ànd passes the greater part of those interest payments to the treasury. In some years time, when the bonds are due for repayment, the government will owe the value of the bonds to the current owner of the bonds, which will be the BofE. QE was an example of the government creating money, to buy government debt on the bond markets thus pushing new money into that market enabling the government to raise more money on bond markets by issuing new bonds. So in a roundabout partial way QE did what you say governments do all the time. The fuss surrounding QE shows that it is definitely not what governments usually do. When the bonds mature as they will in time, they will not need to be replaced with non interest bearing bonds as you suggest. They wilk just expire.

          • RJ

            Fran Please read carefully what I wrote again
            “QE was an example of the government creating money,” Creating reserves via the BoE. And bank credit if and only if a non bank sold the Govt bonds

            “enabling the government to raise more money on bond markets” It made zero difference to this.

          • joebhed

            RJ, your hostility is boundless, and your misunderstandings
            almost equally so, but with far more purpose.

            On claiming misinformation ‘from me’….. you post a Positive
            Money link that I never referenced and had never read, about Adair Turner, who has indeed said many things over recent years in his evolving views about Fisher, Friedman and public money.

            MY reference for his “Permanent Overt Money Finance” (POMF) solution of financing public deficits with debt – free money would be his Volcker Group of Thirty paper titled, “”Money, Debt and Mephistopholes: How Do We Get Out of This Mess? “”
            http://www.group30.org/images/PDF/ReportPDFs/OP%2087.pdf

            Turner identifies the “debt-contract” associated with fractional
            reserve banking, as the basic problem that needs solving.

            Surely, the MMT of Mitchell-Innis would have to disagree. For some reason (we can get back to later), MMT has come to love debt, and
            especially those who issue the debts, because these folks are creators and issuers of tradable monetary assets….. and surely there could never be anything wrong with expanding (net new financial assets) our profit-maximizing capital markets that completely control our money system.

            But as I read through that PM piece you quoted, I was thinking that Turner was just trying to provide an orderly accounting ‘cover’
            for actually getting the authority for spending the money that needs spending to move the economy forward.
            It was his inner central banker seeping through.

            Then, reading on, I find this is exactly what the PM commentary seems to be saying as well. It makes me wonder why you brought that
            quote forward, it being much ado about nothing of concern.

            For some reason, perhaps you see something else there.
            Not sure that I agree with your postulation of analogous meanings
            from Turner’s proposal ….. I doubt it.

            But far more important is the fact that with systemic monetary reform, as proposed by PM here and by AMI in the U.S, and Sovereignmoney.eu in the European Union, these machinations to acquire spending authority proposed by Lord Turner would seem sophomoric….. in the best sense of that word.
            With proper apologies to Lord Turner.

            We propose to return to the sovereign the right to create and issue our money. This would not involve any change in the existing public asset portfolio, solving THAT non-problem.
            The only real change would be that of repayment upon
            maturity……. thus never affecting any current holder of the public debt.

            So, what part of my original comment on Lord Turner are you
            claiming was “more misinformation from you”?
            Thanks.

          • RJ

            “and must, issue debt-free money into circulation on a grand scale if we are to get out of this mess.”
            Where does Lord Turner say this in the above publication. (I won’t hold my breath waiting).

          • joebhed

            LOL.
            More accusations of misinformation and making stuff up without a shred of evidence….. this is what replaces money science for the MMT diatribe.

            The MMT reputation for being the ‘Bullies of Blog-dom’ has been well deserved, and their intolerance for questioning views is only getting
            much more obvious. But, with my apologies to PM readers, that’s why I’m here.

            So, although I shouldn’t have to say it, I never said those two descriptions of Turner’s work were ‘the same’. No ‘gotcha’, or ’made up stuff’ there.

            Do you deny the latter quote (of MINE and not his), Turner’s emphasis is on ‘debt-contract’ based money as the problem, or not?

            If so, that statement stands opposed to the vacuous MMT
            claim that the Status Quo just needs more understanding and everything will be fine.
            If not, then YOU show why the debt-contract emphasis is wrong.

            So, no currency(credibility) gained in that little ‘not the same’ ploy……because nobody said they were the same.

            I have already explained, and agreed with the PM commentary that
            Turner was looking for the accounting rationale for acquiring the right to spend the money, and I sort of laughed at that for its central-banker flavor.

            If you understand the definition of a debt….. and I gave the
            Mann “The Legal Aspect of Money” reference which covers this, then calling something that is only ostensibly borrowed (just an accounting entry really because the CB is holding excess Tsy
            assets) without any intention of a payment of return, is not a ‘debt’ at all. Not legally. It’s a transfer. No debt attached.
            Perhaps I have lost the point you are trying to make.

            For clarity of understanding the discussion(by others), please refrain
            from putting MY statements into quotes, and then demanding that quote from some other author, in this case, Adair Turner.
            This is a tactic of an obvious loser. There is no need for me to show he said exactly (quote) what I said, rather just that what I said is true.
            And, it is true.

            On the first quote, of mine,
            Are you aware, or do you deny, that the subtitle and focus of the publication is on “How Do We Get Out of This Mess”?
            If agreed, then the last nine words of MY quote are obviously correct, and accurate.

            Then, are you aware of, or do you deny that, the proposal
            for “How To” do that IS contained in Turners “Permanent Overt Money Finance” proposal?

            For the record, Turner’s POMF is about the funding of government
            deficits with debt-free money issuance that remains permanently in the economy. Is that agreed?
            If not, then YOU say why not.

            In this Volcker G-30 document, Turner clearly identifies POMF’s origins in the work of Simons, Fisher, Friedman and other reformers who have called for debt-free sovereign money issuance (although
            I don’t recall that he recognizes their influence is originally from Soddy).

            At this point there should be zero controversy that Turner’s
            fix for this mess was really about broaching the taboo of issuing debt-free money permanently into the economy. And since I never put anything from Turner in quotes…..only you attempted to do that….. I find the cause for your apparent consternation
            to be nitpicking on some adverb or adjective, as opposed to what we should be discussing…… like would Turner’s POMF help with the JG or other public-purposed initiatives aimed at broadening aggregate demand in order to ‘get out of this mess’.

            Or, would it not.

            If so, how do advance the PM proposals?
            If not, then why not, and how do we fix that?

            How about we make some ‘money-science’ progress here and try to avoid these tactics of errant claims of misinformation, and ‘just rubbish’?
            I’m ready when you are.

          • RJ

            “to broaching the taboo of issuing debt-free money permanently into the economy”
            You write a long post rather than answering a simple question. But I have said elsewhere. I would call the UK Govt debt liability something else (as its completely different to non Govt debt) or at least a sizeable portion of it. Govt Equity as PM recommends is a good name (backed by an education program to explain why). Because bonds paying no interest are to me almost no different to bonds paying interest or reserves currently paying almost no interest All can be simply rolled over or never be paid off. And likely will be unless the Govt decides to destroy the economy and run a surplus But a surplus would only ever repay a small amount of the current debt.

          • joebhed

            “You write a long post rather than answering a simple
            question.”
            OK, I’ll bite.
            What was the simple question?

            I hope it’s not one of those quotes from me, and then asking
            where someone else made that statement.

            I do believe PM’s ‘government, or public, equity’ description refers to the new money created by sovereign debt-free issuance.
            I don’t believe PM proposes that a UK Government debt
            liability (GILT?) is in any way commensurate with Public Equity…… it being the opposite…….privately-held debt.

            The rest of this is, sorry to say, jibberish, as it appears
            to be floating out in space with no reference to anything I or anyone said.…… being just your opinion about something.
            I don’t know what.

          • joebhed

            RJ, Rather than join in another chase down some MMT rabbit-hole, how bout you bring your best information forward to respond to my earlier request …..””your addition to the discussion is to show whether, and how, the sovereign government creates new money by spending.””
            There is MUCH to discuss there.

          • joebhed

            RJ …. “”So the UK Govt can if they wish fund a deficit using reserves (this could be called sovereign money).””
            No, they cannot. And, NO, central bank (non-cash) reserves are not sovereign money……

            Funding a deficit means providing the money needed for making a payment for a budgeted item, but for which no taxation-derived payment media (bank credit) exists in the Treasury’s CB account. The Treasury, without a positive bank-credit balance, CANNOT send reserves to any payee for anything because it is only the bank-credit that the Treasury can use.
            Our sacred “Treasurys” are users of our bankers’ money system.
            That is a fact. Ask ANYONE who works there.
            (FYI, I did so at the recent AMI conference and the Tsy employee agreed that they CAN run out of bank-credit money, which would shut down the government.)
            No bank credit……. no reserves.

            If Tsy has a positive bank credit balance, then it pays with that credit balance.

            If Tsy has zero bank-credit balance, it can make no payment.
            Tsy does NOT create money when it spends, neither bank-credit nor other form of money.

            RJ ….. “”Or use bonds.””
            Well, obviously that is correct. The sovereign government must borrow the balances needed to fund deficits. This is what I said.
            “Governments without money-creation and issuance powers must fund ‘deficits’ by borrowing money”

            But RJ said ….””This is wrong for a start.””
            Well, obviously, RJ, not for very long after a start as it is here acknowledged as correct.

            Here’s the MMT kicker.
            They claim that the new MMT theory understanding provides the ‘policy space’ to do public purpose ‘works’.
            But if what you really want money to do is public purpose work, then you need a public money system….. and that is what PM proposes.
            Why don’t we discuss THAT ?

          • RJ

            “Monetary sovereignty NEVER leaves a nation” And this is wrong. The UK is monetary sovereign. Euro countries are not. When they joined the Euro. Google it.

          • joebhed

            For some reason my reply is far below.

          • ConradJones

            RJ:
            Can you please declare which Bank you work for please?

      • joebhed

        So, earlier I guessed wrong about what your ‘ignorance about government debt’ claim was all about, thus agreeing it must be “unnecessary”.
        After our discussion I come back and realize this is another vain attempt at the one-two punch from MMT.on monetary reform.
        First, the debt part (learned from banker Frank Newman)….. “What, Me Worry?”.
        And then on reform……”the current system is working OK, and thus reform itself is both unnecessary and will not work”.
        The One Percent would desperately like for all to believe that.

        And yet MMTers refrain that they are not actually the defenders of this debt-based money Status Quo. History will not be kind to MMT for its own errant and banker-centric confusions: posing as progressive (public purpose) economic heterodoxy because they deny the money-multiplier or that we have a fractional-reserve banking system today.

        Over the years, there has been a claim that the new MMT money understanding leads to ‘policy space’ from which to address the JG, but in fact, MMT actually attempts, as here, to deny that policy space potential for the JG or GBI (basic incomes) that we could achieve with systemic reform.

        MMT ……was .

        • SteveD

          Ratio est inimicus, verum est enim imminebat. Suspendisse current mundum, post tempura. :)

  • Patricia curtis

    As i suspected no-one turned up, how disgraceful is that the most important debate in 170 years and the buggers cant even be arsed to turn up.

  • RicoS321

    That was disappointing. A couple of pertinent comments, but as dannyboy said, Andrea Leadson spoiled the debate. None of the contributors added much weight to the discussion. Perhaps it was too early for the parliament debate? It’ll come around again, though I sense it’ll be on the back of another crash.

  • Peter Verity

    I hoped to hear Caroline Lucas speak, as one of the sponsors, but I don’t think she was there.

  • Daniel Key
  • Slave2PaperWithInkOn

    How many turned up for the ”’debate”’ on THEIR pay rise ?? UTTER proof that 99% of mps [OUR employees] ARE paid agents of the bankERS. They do NOT give a toss about us. There will be NO change from WITHIN this system. So now what ? Mass take up of Local/Complimentary Currencies would tilt the balance [in the 99%’s favour] and away from our OWNERS ! The 3min15 Youtube video ”George Carlin – It’s a big club and you ain’t in it.”

  • ConradJones

    I have not seen the debate yet but intend to see it tonight, but a brief glimpse at the video revealed lots of empty seats.

    George Osborne is the chancellor of the exchequer so it is surprising (well, not really) that he did wish to take part in a discussion about money. Perhaps the “ignorance” of MPs and not wishing to be shown up for their lack of knowledge about “Money” and “Credit” is the reason why some did not attend. Or was it that 600 MPs are all holidaying in Rochester and Strood today for the by election.

    Good to see Bill Cash and Diane Abbott at the debate. Diane Abbott actually congratulated PositiveMoney for their work on this.
    https://twitter.com/HackneyAbbott/status/535419705927159808

    Four years ago seeing a debate like this would not have seemed possible.

    I don’t think that it has yet dawned on the other MPs (who didn’t attend) what an enormous opportunity there now is to reverse the trend of ever increasing National Debt and the likelihood that the Deficit will continue for the longer term.

    • RJ

      Hopefully it will do .(the Deficit will continue for the longer term). Otherwise the outlook for the UK will be awful.

      And there is nothing wrong with the current system (the UKs treasury payments system). And a great deal lot right with it. Euro countries will soon enough find out what they have given away.

      Changes are needed with the banks though.

    • Fran Griffiths

      As this was a backbench debate, my understanding is that George Osborne would not have been allowed to take part though he could have attended as an observer.

  • http://www.ukcolumn.org Justin Walker

    Absolutely a complete waste of time and a lost opportunity – everyone who took part were completely out of their depth (20 MPs out of 650!!!). No mention of the Bank for International Settlements, the Bradbury Pound and other means of national credit and hardly any mention about the real history that created the Bank of England. An absolute disgrace and I hope now that Positive Money will wake up to the ‘big picture’ and will throw away the rule book that the ‘System’ wrote.

  • FWHMyers

    Debate- perfunctory.

    Financial junta – not interested in giving up their power and wealth, surprisingly.

    Pseudo representatives – self admittedly clueless or absent.

    Madame Speaker – “the question before the house is have we discussed money creation?……..the ayes have it…….next debate on the monetary system scheduled for Nov 2184. Thank you, next.”

    Next step – build a bigger grassroots movement?

  • vince

    Well I thought it a terrific debate,it covered quite a bit of ground in the time allotted,plenty mentions for Positivemoney and much use of PM information and ideas from several contributors on both sides of the House.

    So Ben Dyson stand up and take a bow.

    OK Leadson rained on the parade,did we seriously expect the powers that be to roll over after one backbench debate?…I think not.But she did not close the gates to further debate,and now the cat is out of the bag, so to speak, we will see more of these debates in the future.

    Rome was not built in a day,and as Steve Baker pointed out ,it is more likely they will have to test the current system to destruction before we get a real change to money creation(let us hope he is wrong on that),but PM is not going away as its ideas offer a prefectly rational solution,a fact picked up by those with intelligence and a reasonably small understanding of banking.PM based ideas will appeal to ever more people.This is a movement that is only going to grow and grow.

    When that day comes and we finally address the crazy concept of allowing our banks to create nearly all our money, we should be certainly be seeing a a knighthood for Ben Dyson and no one in this country would deserve it more.

  • http://abarrigadeumarquitecto.blogspot.pt/ Daniel Carrapa

    Writing from Southern Europe, I’d like to say that there are people from all parts of the world following this issue with great interest. I’ve seen many comments, not only here but on Positive Money’s Facebook page as well, expressing some disapointment. But we shouldn’t undervalue the great step that was taken today in the UK. A long journey begins with small individual steps.
    There were some great arguments raised in the debate. And it was a powerful public expression that the issues promoted by Positive Money are not the ideas of a small group of people with alternative ideas, but they are valuable concerns that are shared by a wide range of people with different political backgrounds. This is extremely important. Certainly, the debate wasn’t a short-term victory towards a magical solution, but that was to be expected. It was undeniably a step in the right direction. So keep moving.
    And congratulations Ben Dyson for fighting the good fight.

    • joebhed

      Hear ! Hear !
      Totally agree.

      The matter of private privilege over the Common Good has been joined.
      It is ours for the re-taking.
      Congrats to all at PM.
      Well done. Very well done.
      Accountability will be ours for all who mistakenly support the elite money-creators.
      We see how they do it, and why obviously it must change.
      Positive Money = Positive Change.

  • DoctorFranklin

    Gove told the Tory’s that they should take Thursdays off the other day.

  • Scott Green

    Difficult to know what to think about the debate. Very poorly attended. I emailed my MP Nick Raynsford and was told twice he had other commitments. Which is frustrating.

    Andrea Leadsom did have a suspiciously well prepared speech, and seemed to want to sweep away the debate with her remarks; stating the current system reformed was adequate.

    Though it would seem there are a few high profile supporters, in one form or another, including Zac Goldsmith and Diane Abbot to name a couple.

    Steve Baker, seems to favor a stateless solution to money creation and seems in favor of cripto-currencys, which is interesting. Milton Freedman, as I understand, was in favor of competing currencies, in order to foster stability.

    All in all, I’d like to see what the next move is. It’s good we’ve got some heavier weight commentators like Martin Wolf and Lord Turner, whom seem to gasp some of the problems and advocate more radical solutions.

  • Scott Green

    Why did Andrea Leadsom say, they would be no way to ‘rein in’ helicopter money. Yes, there is, you just stop doing it.

    • Fran Griffiths

      Also you can tax it out of existence if necessary.

      • planckbrandt

        She is not looking for a solution, she was sent there to denigrate the solution to reinforce the status quo where she used to work and where she must still own shares in her accounts.

        But, point by point her statements can be refuted in print so they live permanently online. The middle-aged white men she was talking about were already raised by Meacher when he talked about the 80 board directors running the banks now. And, they are appointed to vote the shares of an even more invisible lot of real controlling stake owners who are the real beneficiaries of this system.

        Baker was right to point out that they are doing it all in secret now. Leadsom cannot respond to that.

        Nobody at all talked about the fact that real people all over the country are paying a portion of their earnings from their lifetime wages upward as interest payments to the owners of banks for money those banks created ex nihilo. This is the #1 way the system redistributes wealth upward from the many to the few. Meacher said they create wealth for themselves by creating money. But, none of them made this fundamental point about this system clear. For all the reasons they did bring up, none of them questioned the validity or morality of this aspect of the system. Yet, this is the #1 way the system steals from real wage earners and concentrates wealth and power in a few around London and the Home Counties.

        Lilley brought up theology, but he decided to leave out this fundamentally moral part of the money creation issue.

      • joebhed

        Yes, her misguided point has been raised before……. something to do with the benefit of debt-based money being repayments obligations …….. to get that red-hot money out of the economy before it does damage.
        “Helicopter Money” is symbolized as currency bills – a flowing downward on the masses, and we all know that, heavens to Betsy, paper money stays in public circulation for a while. Is that bad?
        But a public money system is marked by its “permanence”, and the only time it should correctly be removed from the economy is by a forecast reduction in GDP-potential, a resource constrained reduction in any metric of GDP.
        If that’s not on the political horizon, there is less than zero need to get that money out of there, where real people need it to live and work.
        Whether its Helicopter Money or electronic Treasury credits.

        Permanent money is the key.

  • http://kredity-zlo.net/ Кредиты Зло

    The humanity is awakening. One more step to that.
    Someday we will get rid of usury whenever it happens.
    Hello from Russia.
    http://kredity-zlo.net

    • ConradJones

      привет

      полностью согласен

      Благодарю Вас.

      Na Zdorovie

      ps. Я не говорю по-русски.

  • planckbrandt

    I found an interesting omission in the transcript.

    Page 5 in my printout.

    Steve Baker responds to Ronnie Campbell about working people talking about money “at the end of the universe”

    Baker speaks of the “categorical difference” between “earning money through the
    sweat of one’s brow” and “making money by just creating it and lending
    it to someone in exchange for a claim on the deeds to their home”.

    The transcriptionist left out “by just creating it”. The transcriptionist typed “making money by lending it to someone” and left out Baker’s “by just creating it”.

    Somebody should look into this transcriptionist and the process of proofreading.

    • plainmoney

      Well spotted.

      Perhaps the omission of “by just creating it” is an example of John Kenneth Galbraith famous statement, “The process by which money is created is so simple the mind is repelled.”
      Maybe, as the Jack Nicholson character from “A Few Good Men” might say, the poor transcriptionist’s brain simply could not handle the truth.

      http://www.youtube.com/watch?v=5j2F4VcBmeo

      Or perhaps something more calculated is going on.

      In any case Hansard should be corrected. Let’s hope that Steve Baker’s office can ensure that it is so.

  • Roger Kirman

    Bearing in mind the obvious threat to the democratic process, posed by the
    present monetary system, where a group of less than 100 senior bankers can
    control the money supply (with no reference to any government), I would have
    thought that that the political class would have shown more interest. However,
    since the majority of MPs have absolutely no idea how money is created, I guess
    it’s hardly surprising so few showed an interest.

    It seems that the present political class fails to see the significance of the
    Bank’s ability to effectively control the money supply, that in turn reduce
    their ability to influence events for the benefit of their constituents.

    There is little wonder why the electorate is becoming increasingly
    disenchanted and seek alternatives.

  • Steve English

    peter lilley wasted time just telling everybody what they already know….he is actually advocating that its ok as it is! peter lilley lives in a world where money is created rather differently than it is for most of us, he does the bidding of oil & gas corporations (and others) and gets paid very handsomely indeed for soing so….this debate was managed by the tories, an opener, a middle, and a minister to close and demolish the argument! a lot of work to do to change anything…..

  • Leah H

    The absence of all government cabinet members, in particular the Chancellor, is a statement that THEY don’t consider this debate as having any importance, and that THEY don’t care. The future has already been planned, as it has been in the past, so no need for them to participate in a debate which serves only to appease the masses.

  • jamesmurraylaw

    Great debate .. !

    However, despite all sides seemingly accepting that banks create money (and therefore 97% of the money supply) there was no agreement from either party on going on from that.

    The two Treasury and Shadow Treasury spokeswomen showed any attraction towards using Sovereign Money in any way.

    Andrea Leadson for the Government mentioned a whole series of questions about the concept as if she was raising objections but without giving any evidence or reasonings for mentioning those questions/objections.

    I suggest that PM grabs all of those mentioned by the two spokeswomen and answers carefully each of them as best as possible.

    Steve Baker or Michael Meacher can then be asked to put hose answers to the Treasury in writing to ask if they therefore answer the qualms of the Government.

    • ConradJones

      Good points.

      I believe one of Andrea Leadsom’s queries was that there is no previous examples of Sovereign Money Creation, I can think of a couple myself:
      1. Isle of Guernsey creates sovereign money which is used in Public Works
      2. The America of the 1700s created it’s own currency called the “Continental” which solved the problem of lack of British Currency but was badly managed and attacked by British counterfeiting.
      3. Greenbacks during the American Civil War after New York Bankers chose to increase their interest rate charges to extortionate rates after Abraham Lincoln asked for their help.
      4. Bradbury Pounds – http://www.ukcolumn.org/bring-back-the-bradbury
      5. Tally Sticks were another form of currency (unit of account) that were quite successful in transforming the United Kingdom into a succesful market economy. Bankers didn’t like them and so tried to burn them all in the Houses of Parliament which burnt the place down in 1834.
      http://www.parliament.uk/about/living-heritage/building/palace/estatehistory/from-the-parliamentary-collections/fire-of-westminster/tallysticks/
      A digital equivalent of Tally Sticks – issued by the State – non interest baring, could be created. This method of payment lasted from 1100 to the creation of the Bank of England. A private central bank did not like the idea of a currency they did not control.

      Seems strange that Andrea Leadsom forgot about all these?

    • ConradJones

      Andrea Leadsom said that she didn’t like the idea of a small group of old white guys controlling the money supply and also did not like the idea of state intervention in the Banking System.

      But… that’s how the System works today.

      So I agree with Andrea Leadsom, I also don’t like the idea of:

      1. a small group of faceless old/middle aged white guys, controlling the national currency and

      2.requiring massive State Intervention through QE, Bailouts, State owned Banks (RBS and Northern Rock), heavy public subsidies to Banks, State backed Depositor Insurance, a lender of last resort, also backed by Tax Payers and the prospect of another Financial Crisis just around the corner – probably after the next election.

      State Intervention in the Housing Market (Help to Buy) has not helped people buy houses – it’s made it more expensive.

      Me and Andrea must have a lot in common as we both believe that State Intervention in Banking causes instability and insecurity.

      Andrea Leadsom by her own comments has proved that the current system must be reformed.

  • George

    I stopped the video on 4:03 and counted 17 MPs. Is this an indication of how important the issue is to the political parties?

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