Sovereign Money – Response to Andrea Leadsom, Economic Secretary to the Treasury

Home » Blog » 2014 » November » 25 » Sovereign Money –…
Andrea Leadsom

Last Thursday, the UK parliament debated the issue of “money creation and society”. This was a backbench debate, which means that no vote is taken at the end and no laws are changed; it is simply an opportunity to discuss important policy issues outside of the government’s agenda.

The government’s view on this debate was provided by Andrea Leadsom MP. Leadsom is the Economic Secretary to the Treasury, a position which is also known by the title “City Minister” (as in the City of London, the UK’s financial centre). She is responsible for the government’s financial reform and regulation agenda.

So we would hardly expect the government’s City Minister to come out as an advocate of Positive Money’s proposals. However, her critique of the proposals was surprisingly mild. Rather than making sweeping assertions (as some critics have done) she simply raised a number of ‘important questions’. I’ve addressed those questions below.

Leadsom comes on to the topic of a sovereign money system (as advocated by Positive Money) by saying:

“But first I just want to briefly set out why we don’t believe that the right solution is the wholesale replacement of the current system by something else such as a Sovereign Money system.

“Under a sovereign monetary system it would be the state not banks creating 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 then come from the pool of customer’s investment account deposits held by commercial banks.

Such a system would raise a number of very important questions.”

She then lists 7 questions, which we’ve quoted verbatim below:

1) “How would that committee assess how much money would be created to meet the inflation targets and support the economy?”

Today the Bank of England’s Monetary Policy Committee is responsible for setting interest rates as a very indirect way of influencing how much money banks create. The 9-person committee has a team of researchers and access to a wealth of data about the health of the economy. The members of the committee spend up to two days deliberating before casting their vote to raise or lower interest rates.

In a sovereign money system, the process would be much the same, but instead of raising or lowering interest rates, the Monetary Policy Committee (or a new Money Creation Committee) would directly increase or decrease the rate at which new money is created by the Bank of England. (The banks by this point would no longer be able to create money.) Show More...

2) “If the central bank had the power to finance 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 it needed to?”

This relates to the fear that if the government is allowed to create money directly, it will get carried away and print money to pay for every white elephant or vote-winning project they can think of. It is thought that even the fear that this might happen is enough to scare investors in financial markets to the extent that they’ll stop buying the government’s bonds. This is normally put foward as the reason for prohibiting governments from creating money, and placing that power in the hands of commercial banks, that we know would never use it recklessly or excessively(!).

It doesn’t take much thought to find an answer to this. Show More...

3) “What would be the impact on the availability of credit for businesses and households?”

This is certainly a topic that requires greater study, and we will be releasing a paper on this in the near future. But a few points are important here:

  • Banks would still be able to lend; they’d just need to get money from savers before they could do so.
  • The amount of credit provided by banks to households to date has been totally excessive. Because most of it went into property (through mortgages) it has resulted in a huge increase in the cost of housing relative to salaries. There is an appropriate amount of credit: enough to allow people to buy houses, but not enough to push the price of those houses up at 20% or more in the space of a year.
  • With regards to credit provides to businesses:

o   Only around a tenth of UK banks’ loans are to businesses. Lending to business is a sideshow compared to their main business (i.e. lending secured on property).

o   Around 66% of SMEs (small and medium enterprises) said they never used bank loans anyway. Instead, they finance their investment through retained profits and other sources of funding.

o   In a survey of UK businesses, the majority said that the primary barrier to their growth was not their access to finance from banks, but whether they could increase their sales. In other words, to boost the economy, we need more money in consumers’ pockets. Sovereign money makes it possible to get money in consumers’ pockets without relying on them to take on ever greater amounts of debt.

4) “Wouldn’t credit become pro-cyclical?”

Leadsom doesn’t elaborate here, meaning that we have to guess what her thinking was on this point.

Clearly, the level of credit is already hugely pro-cyclical. Banks provide too much credit (and therefore create too much money) when the economy is growing, leading to the kind of debt-fuelled boom we had before the financial crisis. Then, in the recession, they restrict their lending (therefore restricting their money creation), which makes the recession worse. You can read more about this process here, but it’s clear that credit is already pro-cyclical, and it’s hard to imagine that it would become even more so.  Show More...

5) “Wouldn’t we incentivise financing households over businesses, because in the case of businesses presumably expect the state to step in?”

It’s hard to make sense of this point, and Leadsom doesn’t elaborate, so we’ll have to guess at what she means.

Leadsom suggests we would incentivise financing households over businesses because “presumably the state would step in” [to lend to businesses?]. But this point makes no sense. Firstly, in a sovereign money system, the Bank of England would be able to create money to lend to banks so that those banks could lend more to businesses. But this money goes through the banks, not around them. The banks would therefore have a role to play in lending to businesses. Why would this incentivise banks to not lend to businesses? Show More...

6) “Wouldn’t we be encouraging the emergence of an unregulated set of new shadow banks?”

The argument here is that by prohibiting banks from creating money, a whole collection of companies that are not banks but act like them will spring up and start creating equivalent substitutes for money, in effect creating the same situation we have today.

Most shadow banks are simply entities that behave like banks but avoid registering as banks in order to escape regulation. So the government approach to shadow banks should really be, “If it looks like a bank and behaves like a bank, then regulate it as a bank.” And who has responsibility for making sure that the regulators do their job properly? Funnily enough, Andrea Leadsom, the City Minister. Show More...

7) “Wouldn’t the introduction of totally new system untested across modern advanced economies create unnecessary risk at a time when people need stability?”

This final point rests on the assumption that the current system can provide ‘stability’, and that the government’s reforms since the crisis have been adequate. But even her own Prime Minister has recently been warning about danger signs in the global economy, and the former head of the Financial Services Authority, Lord Adair Turner, has been warning about the dangers financial stability from rising household debt.

Right now, what Andrea Leadsom thinks is ‘stability’ may in fact be the calm before the storm. The major benefit of a sovereign money system is that it would provide greater stability.

To the Andrea Leadsom’s expressed concerns about the makeup of the committee that would create money:

Andrea Leadsom makes a rather silly point, parrotting points made earlier by Ann Pettifor. Leadsom says:

“And of course bearing in mind our current set of regulators we would presumably then be looking at a committee of middle aged white men making the decision on what the economy needs and that’s also would be a significant concern to me were that to happen.”

“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.”

Yes, the Monetary Policy Committee, which makes decisions on interest rates, is made up of white, middle class, middle aged men with similar backgrounds. To the best of my knowledge, Andrea Leadsom has never campaigned for the Monetary Policy Committee to be made more representative or diverse, so it’s interesting that she has suddenly taken an interest. Presumably if she objects to the Monetary Policy Committee having the power to directly manage money creation, she would also object to them having the power to set Bank of England’s interest rates for the lending of reserves to the banks (which indirectly influences money creation).

However, the makeup of the committee in a sovereign money system is up for grabs. Show More...

Creating a Sovereign Monetary System



Stay in touch

Trackback from your site.

  • Ben Kelly

    This is marvelous. I just tweeted the link to @andrealeadsom, It’s great that this conversation is finally sparking comments from the defenders/profiteers of the current corrupt system.

  • dannyboy

    Good response Ben – well done.

    In other good news, I just learned from PM’s twitter feed that Michael Kumhof has been appointed as a BoE Senior Research Advisor!! This is the same guy who co-authored this paper:

    … and has been a very vocal supporter of ending the Fractional Reserve system. The tide is really turning I think.

  • Patricia curtis

    Bring it on!

  • Simon

    Very good responses, Ben. At the very least, the Bank of England does adequately monitor the money supply now, and is perfectly capable of creating Sovereign money at the rate that existing debt is repaid, so keeping the supply of money constant. This would reduce the debt burden and interest repayments, but keep the money supply up so we do not get inflation or deflation.
    Andy Haldane said yesterday that growth in the economy could be subdued for many years, due to the high level of existing debts. Getting the people at the Bank of England to think of alternatives is a big step in the right direction. I think funding pressures coming up like how to pay for the NHS, social care, and infrastructure improvements in a flabby economy, with an ageing society will concentrate minds, and force the politicians, economists, and Bank of England to look at our ideas in a good way.
    The arguments from the establishment against our proposals are looking poor.

  • Simon

    Andrea Leadsom worked for an Investment bank before her political career. We should not hold that against her, although Wikepedia shows she has “off shored” a fair amount of her wealth. We could do with an “impartial” City Minister, who would consider general society first before her wealthy associates in the City. She is one of many who helps turn the general public off politics when the system is run for and by the wealthy elite.

  • plainmoney

    Gandhi’s famous quote is:
    “First they ignore you, then they ridicule you, then they fight you, and then you win.”
    It seems that the transition from stage2 to stage 3 is now happening.
    Well done Ben and the PM team!

  • ConradJones

    The statement from Andrea Leadsom that stood out for me was when she complimented Steve Baker by saying:

    “I must confess that before the debate I was puzzled that such an intelligent and extremely sensible person should be making the case for a sovereign monetary
    system, which I would consider to be an extraordinarily
    state-interventionist proposal”

    How can the current system with: State Bailouts, State Subsidies, State backed Depositor Insurance, State Lender of last resort, BoE QE, State owned Banks (RBS and Northern Rock) and State schemes like “Help to Buy” & “Funding for Lending” be thought of as anything other than State Intervention ???? !!

    Apart from that and the questions she rasied (answered above by PositiveMoney), at least she showed up and sat through the whole debate and listened. Her statement at the end did seem pre-prepared and it would have been nice if both Andrea Leadsom and Catherine McKinnell
    could have listened more closely as they raised questions that were apparently answered previously.

    Catherine McKinnell said “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.” – possibly she meant how these would be under a Sovereign Money system ??, but she said How money IS created and answered this herself later in her speech. She also showed far too much confidence in the Existing Regulatory System’s ability to manage the money supply and prevent Booms & Busts ??

    • John Rogers

      As always great *respect* to the Positive Money campaign for your media savvy and strategic effectiveness at even getting this debate to happen in Parliament. You are great at drawing attention to the systemic weaknesses of the existing system. However, I agree with critics that your reform proposal is inadequate.

      Thinking systemically, my response to your answer to Question 1 above, would be that both the existing and proposed committee are blunt instruments that respond far too late to events within the messy systemic complexity that is really out there.

      I am all for government creating debt-free, interest-free money to run national services like health and education, that I believe everyone has a right to. The Private Finance Initiative and its ilk makes all taxpayers debt slaves to private sector money for decades after schools and hospitals are built.

      BUT no government committee, whether manipulating interest rates or creating debt-free money can anticipate how much medium of exchange local consumers or businesses need. This is why a broad eco-system of national, virtual, regional and local currencies is so essential to create resilience and be sufficient to systemic complexity. ‘The system’ does not just consist of the view from the centre!

      • Fran Griffiths

        John, it would not be difficult for a committee to make sure there was enough money in the system but not too much. We all know what an economy with the right amount of money in it looks like! Prices and wages are stable and most people who want a job can get one. No imaginable system could take on the task of anticipating how much money each consumer or business needs . It is squarely the responsibility of consumers and businesses to earn or borrow the money they need to pay their way from the pool of money in circulation. Of course it is perfectly possible for money to accumulate in some parts of the economy or in some regions or social groups or businesses and be scarce in others. That is the situation we have at the moment. Debt free money, spent not lent into the economy would address that tendency at a systemic level.

        • Fran Griffiths

          Local currencies are fine for making sure some money is encouraged to recirculate locally but you need the national currency to obtain it. Therefore sovereign money creation is an essential first step.

          • John Rogers

            With respect, Fran, there are different ways to create local currency mechanisms. The Bristol Pound model of local currency bought with sterling is only one model and probably not the best. Its advantage is that it creates short-term confidence in businesses who can redeem back out into sterling at any time. But it creates no ‘new’ money locally and if you don’t have sterling, it is difficult to take part and get value from it.

            Mutual credit accounting systems are different. They exactly reflect the trades people wish to do. Currency ‘units’ are always sufficient, never scarce. Interest-free.

          • solutrean

            I’m all for Sovereign Money creation Fran. You must be familiar with James Gibb Stuart’s proposal regarding a Council Tax voucher scheme whereby local councils will issue vouchers to compensate for government cuts to local services.

            These vouchers would not be dependent on the national currency but they would replace the national currency in part by a local currency.

          • Fran Griffiths

            I didn’t find it on the James Gibb Stuart site but it was in an article on the British Democratic Party / healing the cuts site. I can see it working, except it would have to be in addition to nationally agreed minimum wage levels, like childcare vouchers, or lunch vouchers. The truck act forbids the paying of wages in anything but legal currency doesn’t it, because unscrupulous employers were able to force employees to pay high prices at the company store by paying part of their wages in company store tokens?

          • solutrean

            The idea seems to have been originated by Mr Peter Cahill of the Scottish Monetary Reform Society in Glasgow in the 1950’s. My source is James Gibb Stuart’s book ’The Money Bomb’ P99, ’The Rates Voucher Scheme’.

          • Fran Griffiths

            I have a copy of The Money Bomb although it is literally falling apart! You are right, it is in there. I had forgotten. I have found a slightly better account on the web. document 14 This gives the credit to someone else, and names Peter Cahill as the man who introduced it to Glasgow city council.

        • John Rogers

          Fran, I don’t share your assumptions. I don’t think anyone knows what an economy with the right amount of money in it looks like. Self-confessed die-hard monetarist Peter Lilley claimed in the debate that for most of his life there was too much money in circulation causing inflation and now there is too little. It’s just an opinion, not a fact. Who really knows how much ‘enough’ is?

          What we can see repeated time and again is an ‘economy’ where, whatever money is ‘there’, is unevenly distributed and tends towards increasing inequality. The rich get richer, the poor get poorer.

          The question of money issuance is a multi-dimensional one: social, political, moral and technical. Single, magic-bullet ‘solutions’ from the centre is 19th century thinking applied to messy 21st century problems. It is not enough.

          • ConradJones

            John, Hopefully you can agree that the system was fairer when the Banks were restricted to only creating 80% of the Money Supply back in the sixties, with 20% of the supply issued by the Government as non-interest baring money.

            Just after World War II, the Government share of the money supply was closer to 40%, which allowed us to rebuild the damage after the War.

            Would you not agree that we should reverse the trend of the last forty years and at least return to an increased amount of publicly created money. The Bank of England has an excellent record of controlling Notes & Coins (M0), what is out of control is Bank Deposits (M4). It seems logical to me that we should therefore restrict Bank Deposits and increase the amount of M0 to prevent deflation. The Bank of England have a wealth of statistical data and are very well placed to monitor and control hte money supply if Parliament give them the power to do so.

            To argue that it the MPC or future MCC is a blunt instrument

            defies the fact that the Bank of England record on money that it controls is very stable and has been increased to follow the wreckless money creation by Banks as they are forced by a system that assumes that debt money will find an equilibrium – which it has not.

            An alternative would be to take control of ALL UK Banks and have all interest payments sent to the Treasury. But then that would not create competition witinh the Banking Industry which is required to improve or maintain good business practice. A Government Bank could be setup which loans directly to Businesses with interest paid to the Government n addiiton to a money supply comprising of more State created money.

            The advantages of sovereign money however would be:
            1. No more Bank runs
            2. Improved competition

            3. Simplified Bank Regulations
            4. No need for Depositor Insurance
            5. A Transparent Money Supply
            6. Ability to increase money in times of recession and decrease money in times of boom – which is counter to Banks who act too cautiously in times of recession.

            The MPC focuses on Inflation and they actually have done a good job, what let’s the Economy down is the unstable way and misdirection of credit creation which – much too many’s frustration – get’s funnelled into the Housing Market instead of productive investment. We could have a housing market more like Germany’s by adopting Steve Keen’s proposal of restricting House Price Valuations to a factor of the rentable value of the property, thereby fixing the price that can be paid making offers by buyers based on the size of deposit and not on how much debt someone is prepared to get into. This would help increase capital, which would further increase savings, something that will never be able to happen in a system based on debt money.

          • John Rogers

            @ConradJones As you mention the venerable Steve Keen, here is a very amusing blog entry from him in which he says “the interest rate decision is about as useful as a square wheel in controlling the economy”:
            So in that sense, central bank decisions on interest rates tend always to be behind events.

            Whether the system was ‘fairer’ when banks only created 80% of the money supply, I don’t know. It was still a ‘system’ in which those with existing assets got privileged access to bank credit. It has all just got far more unequal since that time.

            My overall point here is that ‘the economy’ is a 19th century concept. There are many overlapping economies: personal, family, local, regional, national, international. That creates deep systemic complexity. Fixing problems caused by systemic meltdowns such as the finance crisis will not come from single-bullet solutions. We need solution diversity with respect for different solutions and their potential to create the diversity we need for resilience.

            I was actually slightly appalled about the silence in the debate on money creation about either the environmental crisis or austerity and its effects and the link of both of them to how money is created and managed.

          • ConradJones

            Michael Rowbotham explains why in a debt based economy, that cheap goods are favoured which have to be endlessly remade and shipped around the World. Cars, being the second most expensive item we buy, are only designed to last for about a decade – after which time, the manufacturers no longer have to provide spare parts.
            This naturally has an effect on the environment which was missed by the debate.

          • montmorency

            Or as Richard Werner says in his books, interest rates follow growth/inflation (or recession/deflation), not the other way around.

          • Andrew Buckley

            It sounds like we have a lot of views in common, John. Might I suggest that you consider the utility of PM’s approach (not discussing more than one part of the solution). This way, their message is clear, palatable and comprehensive with regards to their narrow focus. Their proposals are also eminently realisable.

            We need diverse solutions (DEFINITELY community currencies), but we also need awareness NOW. People are much more likely to start thinking if “silver bullet” solutions are presented than if you come at them with, “A complex interplay of solutions, constituting a radical overhaul of everything we now do is required…” TOO HARD – need to make dinner!

            Additionally, silver bullets could be more silver than we know, in that if a simple system like PM’s proposal were adopted (and consequently explained to schoolchildren – real education!), then it might just spawn more bullets. It’s a bit like shotgun pellets, only without diminishing the silver bullet they sprung from :)

            I can very much empathise with your determination to avoid becoming an ideologue, and the corresponding focus on a less intellectually-self-gratifying and more local community empowerment. I’m concerned though that you might be unwilling to take the jump as a result. Wouldn’t a transition from outright tyranny to the radical proposal of flimsy representative democracy appear just as silver bullet as PM’s campaign? Wouldn’t it also be worth fighting for, even if for nothing other than the comradery granted by a shared vision?

            We must not repeat the mistakes of history (Stalin and Mao come to mind), but surely the greatest progress has been made by the self-aware campaigns for social justice focussed squarely on a national level. Civil rights movements have transformed the way individuals form the very thoughts in their head, but they didn’t do it by surrendering idealism itself. It was rather the partial realisation of utopian ideals, and their concomitant intrusion on social dialogue, that made the World a better place.

          • John Rogers

            Andrew, I really appreciate you taking the time to have this conversation. I am actually taking time out of writing about a broad range of solutions to the ‘money problem’ to write this. And so I will do you the justice of explaining why I am pursuing this here.

            I am not new to this debate. Fifteen years ago I used to go the annual meetings of the Bromsgrove Group where people from various monetary reform groups used to meet up to discuss strategy. The best thing they probably achieved was the Early Day Motions tabled by Austin Mitchell MP over the years before the finance crisis, that remained ignored.

            I have great respect for what PM has achieved in a few short years by smart use of modern media to highlight the problem of banks having a monopoly on the issuance of money for private gain. Great work.

            BUT the problem is the temptation of then presenting a panacea solution that is not credible in a complex world. That is why I published an article in the monetary reform Prosperity magazine ten years ago called “Two Sides of the Money Coin” (here archived at the CCMJ):

            In that article, I argued that a systemic approach to monetary reform requires both reform of the national currency and a flourishing of other currencies. Both/and not either/or.

            OK, you say that for Jill and Joe Public, that is too HARD. You invited me to “consider the utility of PM’s approach (not
            discussing more than one part of the solution). This way, their message
            is clear, palatable and comprehensive with regards to their narrow
            focus. Their proposals are also eminently realisable.”

            I don’t agree. More like “clear but simplistic.” Think about it. You have already got them thinking about *the problem* – a monopoly on money issuance by private banks fleecing us for a profit – with your clear communications. Then you ask them to believe that a committee in London can replace that monopoly with a new one and decide how much money we all need to do our business?

            Does that sound believable in a world of mobile phone payments and cryptocurrencies where a new generation is already striving for less and less central control?

            Like I said in another comment, I for one am prepared to believe that PM’s proposal would be great for funding essential national services like health, education, museums etc. and get our national institutions away from slavery to private finance and the lies of austerity but beyond that I cannot see what formula it would use to decide how much money we all need.

            So here’s a challenge to PM. I want to see a great two minute video in which people are using different currencies for different purposes. Their new local school and hospital have just been funded with ‘sovereign money’ – no interest, no debt. They then go and buy a coffee and Pay-By-Text (a la Brixton Pound). After that they go online and order a secondhand book and pay with a cryptocurrency. A family goes to the local food bank and can eat that week because they use local ‘community loyalty points’ they earned by helping out in their community.

            In short, I want to see something that is not just based on idealism but on practical daily realities. That is sustain-ability, that is resilience.

          • Andrew Buckley

            I liked the article, but I think you forget that most of us haven’t been in this fight that long. I honestly don’t see two divided groups. I see division of labour in advocating for much needed solutions. The danger in presenting complex solutions to a complex problem, is that you lose people’s enthusiasm and confuse them, without them gaining any understanding.

            The two groups are only related by a common goal; they could not represent more different ways of thinking. A monetary reformer looks for, in one fell swoop, a way to improve an entire nation, often from their armchair. A community currency developer makes a concerted, long term, effort to improve the health of their local economy. One deals with abstract and impersonal political constructs, while the other requires forming friendships and working with small groups of people. As you note, the two are complementary, and we need both types of thinkers (those dedicated to small scale problems which cannot admit general solutions, and those dedicated to large scale problems that are beyond the scope of useful discussion if not simplified and idealised somewhat).

            I see limited danger in proposing a “panacea” of a solution, but I can see that those keen on community currencies are offended (and concerned) by the lack of mention. I’ve only been in this debate for a year, and it strikes me as silly to quibble over fusion. I don’t think anyone actually believes that this would solve all our economic woes, but they understand it would remove some very serious institutional corruption that’s inhibiting progress on many different fronts. That includes community currencies, which are mostly held back by a lack of community, but also the depression created by our economic system.

            You’d probably have more success bringing community currencies to the forefront by being involved with PM, than by standing warily on the outside.

          • Fran Griffiths

            Perhaps I over reacted to your description of the PM proposals as “inadequate”. I would go as far as to agree that the reforms proposed are unlikely to be sufficient on their own to solve all our problems but they are an essential first step. Who knows what currencies and money systems will emerge? I haven’t come across anything yet that is accessible to ordinary people without the mediation of a large business or government (producer credit or sovereign money) or bank (debt money). Time banks are good but limited in application. We could make a small gesture by insisting on using cash. If enough of us dId it presumably the proportion of cash would have to rise but it would be a retrograde step!

          • John Rogers

            Yes, sorry that the word ‘inadequate’ carries unfortunate personal connotations of failure. I didn’t intend to cause personal offence. :-)

            I meant the word in a systems sense of not allowing for enough diversity for resilience. The reason I called it “19th century thinking” is because there is a danger of falling into the same trap of neo-classical economics that aspired to model itself on classical physics and then continues to model ‘the economy’ as though it were a hydraulic system, with a central currency issued and then trickling down or through the system. This is not adequate to the economic complexity or need we can all observe.

            Again, I do not hope to cause you offence and I hope you will continue to learn more about the diversity of other currencies out there. You call your proposed reforms a ‘first step’. Some other currencies have been showing another model of currency issuance or creation for decades, like the 80 year old Swiss WIR franc, an interest-free regional currency serving 60,000 SMEs across Switzerland or the Banco Palmas, now supported by the Central Bank of Brazil and creating micro-loans to residents of some of Brazil’s poorest districts. None of this requires per se reform of the national monetary system. I do not see it as either/or but both/and.

            People can read much more about all these systems in our 2012 book “People Money – the Promise of Regional Currencies”, which I co-wrote with Margrit Kennedy and Bernard Lietaer.

            We can then add to this diversity the whole new possibilities opened up by the rapidly evolving field of cryptocurrencies, which MP Steven Baker is clearly a fan of.

          • Fran Griffiths

            I don’t think anyone in Positive Money is ruling anything out. In fact I am sure that the main motivation for having a set of proposals to put forward is to show that there IS an alternative to debt based money.
            Paul Grignon mentioned his idea of Producer Credit in the comments of the PM blog about Mark Carney recently. I like the story of the people of Guernsey who created their own currency in the 19th century at the end of the Napolionic wars to rebuild their market house ànd roads and ditches. I understand 19th century thinking. Why do we have to have systems for money or anything else, that only a very very few can understand?
            I will look out for your book. :)

          • John Rogers

            Fran, I have just read PM’s proposal for creating a sovereign money system and two issues concern me greatly about the proposal.

            1. In the Introduction the authors state that the reform “would transfer the ability to create new money exclusively to the state” and on p.6 “We refer
            to this specific reform as a ‘sovereign money system’, describing a system in which all money is created by the state.”
            As they do not define ‘money’ in the paper, I have to assume that they mean ‘legal tender money’ ie the only money acceptable in law for paying taxes and debts. Otherwise these statements would suggest that all the Transition currencies in Totnes, Lewes, Brixton and Bristol would be made illegal and all cryptocurrencies in the UK. If the highly successful WIR Bank or Banco Palmas were in the UK they would also then be made illegal.
            That smacks of an over-powerful state, not the diversity we need for resilience.

            2. Many well-intentioned efforts at reform – including amongst local currencies which is what I know best – can fail on the thorny issue of governance. I find great naivety in the proposal that an ‘independent’ Monetary Creation Committee would be any better than the existing cabal of “profit-seeking bankers and vote-seeking politicians”. We all know there is a ‘revolving door’ between cabinets and corporations. They go to the same schools and universities and become the new Establishment. This is the core of the issue of whether the proposed reform would work. But the paper completely dodges the issue with “There is an important debate about whether such a committee should represent a wider cross-section of society, but that is outside the scope of this paper.”

            These two questions need convincing answers for me (for one) to believe that the reform is desirable or useful.

          • montmorency

            One doubt I have is about the idea that anyone at the present time has any idea of the “correct” amount of money to be in circulation at any one time. I may be doing PM a disservice, but from what I remember, this issue to is also somewhat glossed over.

          • Andrew Buckley

            The existence of a correct distribution of money under a particular set of political priorities and circumstances (such as a given amount of money and your society’s propensity to save, etc.) is pretty obvious. You only need to understand that recession is a lack of money for too many people, and bubbles are caused by too much money in particular economic sectors, to see that. A correct amount of money is less obvious, because it’s complicated by the circumstances under which you’re adding or removing money from the system – price inelasticity (prices rarely go down) and the shortcomings of central planning can wreak havoc on the validity of any model’s predictions, not to mention the fact that the amount is related to its distribution in a very unclear way.

            So we can see that Communism suffers for multiple reasons, the most relevant here being the imposition of political priorities which stymy individuality (some people want a flashy car, and some people want free time). The goal of Communism was to end the tyranny of private exploitation, and corruption aside it largely achieves that. But the consequences are extreme with regards to the imposition of force to achieve “soft” political ends (pretty much anything more restrictive than don’t physically hurt people).

            Capitalism, on the other hand, suffers due to a negligence in protecting people from the financial predations of others, and a systemic instability (boom & bust). Mostly eliminating the former without violence and long term (generational) change is beyond the scope of PM’s proposals, but their system of banking would certainly reduce the profitability of financial fraud. Their concomitant injection of debt free money which would have to be introduced to keep society moving definitely suffers from the central planning mentality. But is it really that bad compared to what we have now?

            I say this, because I’m not going to defend the idea that someone can work out the right amount of money to achieve set of political objectives (even economic “stability”), because there is no obvious way to disentangle all the inter-related economic and political components of such a task. What I will defend though, is the notion that doing things this way could only be better than the way we currently do it. Why?

            Because currently money is endogenously injected into the economy, mostly by the lending practices of private banking institutions. As PM elucidates, these lending practices are driven by the pursuit of profit, and restricted ONLY by the availability of creditworthy borrowers (someone is creditworthy if it is deemed profitable to give them a loan). The result is an antisocial paradigm of investment focussed entirely too heavily on housing swaps and the production of nothing of use to society. It’s great for the banks, who cause bubbles, wait for them to crash, get bailed out at the end, and pocket all the profits and assets which became shareholder equity along the way. It’s awful for everyone else, who get trapped in a system of emotionally destructive, and creativity stifling competition (not all competition is bad, but competing to see who can own the most residential investment properties is egregiously antisocial), in which the 97% of the money supply is RENTED from plutocratic overlords (commercial banks). How could spending debt free on education, health and the pursuit of full employment – perhaps with an associated reduction in the working week – be worse than that?!

            Some say removing the central bank would be a better idea again. I’m not convinced, but if there were a public bank option for “consumers” (ehem… sorry, I mean to say “real people”), to facilitate the large start up loans required by entrepreneurs and industry sponsored R&D, then I’d be okay with that system too. The bigger problem here is that the public bank would probably outcompete everyone else without trying to, and that might just trade a private oligopoly leasing our money supply for a public monopoly doing the same. We could argue the merits of collectivist ideology all day, but the point is that this system could potentially be worse (or much, much better) than the system we’re trying to get away from.

            The advantage of PM’s proposals is that they couldn’t possibly be worse (perhaps no better – though even that’s a stretch), as is evident in the historical success of Keynesian economic policy. Countries have consistently been pulled out of recessions by government spending, whilst monetary policy (controlling interest rates etc.), is continually demonstrated to be of limited use – clearly banks don’t really care, they make money regardless. The creation of an independent committee separates the technical economic and political economics questions as much as it is possible to do so. And, the capacity to calculate the correct amount of money is less pie in the sky than you might think. I refer you for example to the impressive work of Steve Keen, who has showed beyond reasonable doubt that a particular metric (namely the ratio of private debt to GDP) can be used reliably as a warning flag for impending financial crash.

            I leave you with this: crowds are unpredictable, often in predictable ways.

          • montmorency

            Thank you Andrew. A lot of interesting thoughts there, most of which I probably agree with, others will take more digesting.

            On central banks: I doubt if they can be removed, and I’m not sure if they need to be, but I do think they need to be reformed and come under some form of democratic control. Designing that democratic control would be a difficult job, but leaving them effectively uncontrolled will be disastrous. PM don’t really seem to address this – I suppose they don’t want to make too many enemies in the financial establishment – their job is difficult enough as it is.

          • Andrew Buckley

            Yeah, there’s a lot of that. You’re better off making friend than enemies.

          • Fran Griffiths

            On point 1 John, they do mean the legal tender money that we call sterling and use to pay taxes. The 1844 Bank Charter Act made it illegal for anyone except the BofE to produce bank notes of the sort that purport to be national currency. To do so is counterfeiting, a criminal offence. Nevertheless it is still perfectly legal to produce Bristol pounds or Lewes pounds because they aren’t pretending to be what they not. It will be the same with alternative electronic currencies I am sure.

          • John Rogers

            Fran, thanks for your reply. I think that, in order for the proposed reform to be systemically credible, the paper introducing it needs to spell out in so many words that (a) it is talking about ‘legal tender’ money/currency and arising from that (b) any other kinds of non ‘legal tender’ currencies, whether regional or virtual, are not ‘illegal’ but simply not acceptable for payment of national taxes or debts (the definition of ‘legal tender’), although some are already accepted for payment of local rates (Brixton, Bristol).

            It needs to be crystal clear that ‘sovereign money’ alone is not an adequate reform for the systemic diversity we need in the face of the unprecedented environmental and social crises we face. The diversity of solutions needs to match the diversity and complex systemic nature of the crises. Otherwise it is just more chasing of ‘magic bullets’ to solve all our woes. I hope that PM campaigners will understand the importance of this.

          • Andrew Buckley

            I think it is understood and generally accepted. PM is just very cognisant of what makes a successful pressure group successful (razor sharp focus on a small set of ideas/proposals). It’s the sign of a healthy new paradigm when frank criticism is present though, and I doubt anyone at PM is really afraid of your points. They’re good points, and I certainly welcome them, though my link to PM is tenuous (only because I’m Australian).

          • Fran Griffiths

            On point 2, Ben Dyson has said that deciding how mu

          • John Rogers

            Fran, again I simply do not believe that “deciding how much money should be created is a technical matter”. It suggests that a few experts armed with a bunch of statistics can come up with a magic figure, which is in-credible. ‘The economy’ is not one thing, it is multiple interlocking personal, family, community, regional, national and international economies. It is systemically complex.

            I believe that PM’s proposal has the best chance of acceptance by a broad public in funding essential national services like health and education to get them off the slavery to private sector finance like the outrageous debt burdens produced by PFIs. But creation of money beyond that is too open to corruption and error.

            The traditional local banker was probably in a far better position to know how much money to ‘create’ in issuing a bank loan before modern banking got corrupted by seducing people into unsustainable debts.

            But the answer to that corruption is not a small, corruptible, national committee, even if it has a perfect gender, class, race and disability mix. Citizens need to be convinced that this proposed committee is *truly* independent of the existing power structures. What guarantees can PM give that this will be the case?

            BTW, it would ne nice to hear answers from Ben himself on these questions.

          • Fran Griffiths

            The human body is not one homogeneous thing either and yet if there was a deficiency of blood in the system (as evidenced by low blood pressure, anaemia etc) a transfusion of blood into the arm of the patient would be sufficient to get blood to all parts of the body. It would not be necessary to inject blood directly to every organ. Likewise with the earth’s water system.On the whole water flows around the ecosystems of the world even though the world is a complicated place. However if you want water to go to a parched area that doesn’t normally get much rain then you would have to take special steps to direct water/money to that money first.

          • Andrew Buckley

            This is a good point Fran, but John highlights a significant issue we’ll have to address: will this committee meet every day, every week, every year? How much debate will be allowed on the best amount of blood to transfuse? Will we allow debate only within a system of predetermined figures of merit (i.e. reaching full employment, or maximisation of leisure time/productivity/technological progress/income equality, etc.)? Who will debate the appropriate figures of merit? Will lofty ideals such as improving national happiness come before military might? Won’t it be necessary to appease the more conservative and militant sectors of the population? We can’t entirely separate the creation of money from politics as a “technical matter” until we define a hierarchy of political priorities.

            I think this would promote a fantastic set of debates if it were actually implemented, and it couldn’t possibly be worse than putting all our eggs in expensive housing. That said, we should not be content to ignore the vital role that politics would play in technical matters.

          • John Rogers

            Thankyou, Andrew, that is the reflection of ‘messy reality’ I was looking for. Unless PM campaigners think these points through, others will do it for them and it will be another botched reform.

          • Fran Griffiths

            At the Positive Money weekend in the Lakes we had a lecture and discussion on various complementary currencies led by Jem Bendle who manages to be a supporter of Positive Money while at the same time strongly advocating for these alternatives.

          • Fran Griffiths

            You can think messy reality through as much as you like but it will still surprise you! And as you are thinking people continue suffer the consequences of a truly abysmal system. The representatives of the way things are would like us to argue for ever. While we fight amongst ourselves are leaving them alone.

          • Andrew Buckley

            That’s exactly right. When people are taught that they all deserve the same rights, they get outraged when it is demonstrated that they don’t have them. When people are taught that the amount of money is determined for their benefit, they will be outraged if there is obvious misconduct in the process. Reforms like this could only be a step in the right direction.

          • Fran Griffiths

            I am not so sure that it would be necessary to be precise about the amount created.The economy(ies) would adjust ftby people saving more /spending it slowly if they had more than they needed or spending it faster if they didn’t have enough. Or we’d get inflation/deflation. If there was less debt deflation would not be such a problem.( Incidentally it isn’t necessary to be precise about the amount of blood transfused either as the body adjusts as long as the amount is roughly right).
            Although Positive Money does not mention complementary or alternative currencies on the website, they do figure in their thinking. At the Positive Money weekend away in the Lakes

          • Andrew Buckley

            Of course there is no need to be too precise. It would definitely be an adjust regularly sort of thing.

            My point is that the priorities of the politicians would have a massive impact on the outcome of the technical number crunching. Thus there is no actual “complete separation” of the politics from the amount of money which is created. Rather, it is just separating those who spend it from those who do the calculations. That’s not a quality judgement, but just a point.

          • Fran Griffiths

            I don’t know as much as you do about all this or as John does about complementary currencies. I am just going on what I have read in the two PM books. I do remember Ben describing. a process whereby the money issuing body decides how much to create by taking into account its discussions with the government about how it planned to spend that money.

          • Andrew Buckley

            That’s about as much as I know as well :). I don’t think one can know any more about it until it’s actually attempted.

          • John Rogers

            The blood transfusion/water analogy is certainly useful in talking about
            currency. But let’s extend it. You can infuse/pump from the centre and
            you can let people dig their own wells. Both/and please, not either/or.

          • Andrew Buckley

            I’ll have a doctor for my transfusions, thanks. I’m also much happier having water centrally treated than having to do it myself. There are many advantages to the redundancy of individuals taking care of themselves (namely resilience to catastrophy and personal development), but let’s not put all our eggs in separate baskets. Economies of scale are often necessary to prevent the inevitable injustice of every man for himself.

          • John Rogers

            Local and virtual currencies show us that we do not need a doctor sitting in London to decide how much ‘blood’ we need. We can have wonderful economies of scale in regions too but we can’t do that with monopoly national currency systems alone.

            Resilience will not come from economic monoculture. Check out the work of Bernard Lietaer and colleagues if you don’t believe me:



            Currency variety gives us the tools we need to really do sustain-ability and to combat the evils of austerity, which has no economic or moral basis.

          • Andrew Buckley

            To save talking past each other, I refer you to my other comment about how much we agree on all of that. Still, a well designed monoculture without community currencies is a better situation than a poorly designed national currency with them – the community currencies mediate exploitation, but they can’t alone replace the national currency. Besides, there is absolutely no reason why PM’s proposals are inconsistent with community currencies. In fact, I’d say they encourage them, because the rationale behind the proposals is entirely congruent with anti-austerity comments you just made (shortages of national currency cause real pain for real people).

            I do very much want to read Lietaer’s book, but I haven’t yet found the time. When my PhD ends (probably in about 6 months or so), I’ll be going on a reading binge.

            To clarify on diversity: PM’s proposals could well be applied to set up regional currencies as well. There’s no need to combat what might be an excellent tool for smooth transition from our horrendous current paradigm. People will always want to trade outside their region, and so it makes sense to have currency exchanges, but to abandon national currencies altogether is obviously not helpful, as a nation is a community in the eyes of the World.

          • John Rogers

            Nobody I know seriously proposes that we should abandon national currencies. They are a product of a long evolution and served us well to bring us to where we are. But they first emerged to prominence in the nineteenth century with central banking and globalisation. Alone and in their present form they are no longer fit for purpose for the systemic diversity let alone justice we need.

            Non-national currencies have been deliberately called ‘complementary’ by Bernard Lietaer as they do not intend or attempt to replace national currencies but run in parallel with them.

            My problem with the PM written proposal (reference my other comment to Fran) is that it assumes that legal tender money is the only possible money and is totally silent about other possibilities. That does not reflect the world most people live in now (see my other comment).

          • Andrew Buckley

            So you want to see an endorsement of Lietaer’s ideas in the PM proposal itself? Or do you require (for you to endorse PM) that they be intertwined with any formula used to determine how much money is needed?

            The former would probably be trivially achieved, doubtless with little resistance outside the push for a concise message. The latter would require some serious fleshing out (that I’m more than happy to discuss with you).

            Perhaps though you are arguing that the government should create enough money to fund what is deemed to be vital, and then leave it at that, letting alternative currencies grow organically? I would argue that constitutes “deciding how much money to create”, and I will now explain why I don’t think that the organic growth of national currency is a preferable alternative:

            First, let’s cover why we need a national currency. If alternative currencies take over entirely, then we have no public body. In the end, you have to decide how much national currency you’re going to create/let it grow organically, because there has to be some roughly correct amount for it to be valuable (a necessity for public spending).

            If you want organic growth of a national currency, you pretty much need a banking system (public or private or a hybrid). Public banking is necessarily debt based, else it just deciding how much money to create AND where to put it. You can’t just have the public bank giving money to anyone who asks. A hybrid might be a private system with a central bank (our current system), and a private system would be this system without a central bank. In a private system you still need a national currency for public spending, unless you want to borrow from banks (I do not). The difference between a purely private banking system from the current system would be mostly illusory, with private banks quickly colluding to form a de-facto central bank, thus ensuring they can all inflate their currencies with impunity. Anti-collusion laws don’t work, and so the only limitation on private banks’ lending would be how much of the national pie they could get their hands on, leaving Robin Hood as the only way to get money to the needy. Even here, someone has to decide how much national currency there is going to be, because it underpins public spending. You can’t issue bonds to raise money, because then you’re just borrowing from the banks (or the richest – whoever they are), again indebting society to the wealthy. And you can’t just spend without literally “deciding how much money to spend”. There is no way around it.

            So the only debt free national currency I can imagine would be one created by fiat, with someone deciding how much to create, and making it valuable, probably with taxation.

            In conclusion: if we want public spending we need a national currency to be the centrepiece of the economy. If we want debt free spending (and we do), then we need to decide how much money to create. The only alternative is to forgo the idea of public spending entirely (maybe with crowdsourcing – but that’s really making the problem harder than it needs to be).

            So I’m not really following how any solution will work without something akin to the PM proposals. Alternative currencies are an important addition, but they will not solve systemic exploitation alone, unless we completely abandon public spending.

          • Fran Griffiths

            The reason why a BofE committee will be better than a group of exactly the same kind of (mostly) men who run commercial banks, is because in the first case their job will be to act in the interest of the country as a whole whereas in the latter case their job is to maximize the profits of their organization.

          • John Rogers

            See my reply to Point 2 below, citizens would need some pretty good guarantees of independence to believe this committee is acting in everyone’s interests and that it is not just another iteration of the ‘great and the good’.

          • Andrew Buckley

            I think the point here John is that arguing against such reforms because they concentrate power is ignoring the fact that power is already more concentrated and entirely unaccountable. At least in the proposed reforms, you know who sits on the committee (it’s not a secret like the identity of shareholders) and they could be forced to publish their analysis. Groups of concerned citizens could easily produce reports critiquing that analysis, and so on. It’s not going to be immune to corruption and indifference, but at least it won’t encourage it by design. It’s the same reason that a representative democracy is a better system than an outright dictatorship, even if they do end up becoming 2 party dictatorships. If you don’t believe that’s the case, then I have to wonder what solutions are worthwhile (strictly with regards to national currency)?

          • Douglas Kell

            The *amount* of (real, convertible, asset-backed) money in the economy is far less of an issue than the fact that non-state lenders expect to make returns that far exceed any possible growth in the REAL economy, which is the only way their ludicrous and destabilising ‘leveraging’ can be made to APPEAR to balance the books. This time is not different

          • montmorency

            And it is not simply a matter of “too much” or “too little”, but about where that money / credit is directed, c.f. the interesting things Richard Werner has written about “window guidance” in Japan and the eastern “tiger economies” (in the past).

            PM proposals could usefully be enhanced with proposals for a modern version of “window guidance” (in a UK context), but since RW is (I believe) on their advisory board, I assume he has made his views known on this already.

            I also feel that PM should address the thorny issue of the national debt a little more directly.

      • ConradJones

        Hi John, there is a very interesting re-evaluation of what happened in the Weimar Republic’s hyperinflationary period during the 1920s.

        “At first, the speculation was fed by the Reichsbank (the German central bank), which had recently been privatized. But when the Reichsbank could no longer keep up with the voracious demand for marks, other private banks were allowed to create them out of nothing and lend them at interest as well.”

        You may have already been aware of this but I only found out relatively recently that the Hyperinflation of Germany – although partly influenced by the Versailles Treaty after WWI, was NOT caused by a profligate Government printing Marks in order to pay off it’s War Debts and keep the rest of the economy going, the main period of hyperinflation occurred when the Central Bank was privatised, speculators were allowed to short sell the Mark and to keep up with demand for the devalued currency, private Banks were allowed to create Marks out of thin air and lend them as interest baring debt – like the UK Banks are and every other Bank in the World.

        We have an unstable and insecure Financial System with a younger generation being laden with debt from University Tuition Fee loans and if they are lucky enough to get a Job when they finish their course they are going to need a very well paid one in order to buy a House because the Government is propping up and over priced Housing Market. There’s an “I’m alright Jack” attitude to the older generation (of which I am a member) – they think that because they managed to buy a house when they were younger, then why can’t the younger generation do the same? This attitude is born from ignorance of what has happened to the Banking System over the last forty years – since capital reserves were dropped to whatever Banks can get away with and without the restrictions of the Gold Standard pre-1971.

        RBS and Northern Rock were both very badly run Banks, and some of the activities they engaged in were negligent and slightly less than honest.

        The negligence takes the form of RBS who bought ABM Amro for 49 billion pounds without analysing the risks properly. Due to this purchase, their capital buffers were squeezed to wafer thin levels exposing other risky loans which led to their bailout. The Bailout cost taxpayers 45 billion pounds.

        Please bare with me, I will get to the point.

        In 2013, according to the Guardian figures, the number of students entering full-time higher education reached 495,596. As a rough calculation let’s assume (you will have to bare in mind that I am not a PositiveMoney researcher and so these figures are only a ball park figure) that the other two years of students (2nd year and final year students) are the same number giving three times 495,596 students, equalling 1,486,788 undergraduate students. Multiply this by £9,000 of tuition fees plus £6000 for both Maintenance Grant and additional funding for the Universities per student and we get a figure of 22.3 Billion pounds.

        My point being that for half the cost of the bailout to ONE Bank, all University students in the UK could have been funded for a year with a maintenance grant of £ 2,500 and additional funding of £2,500 to the University where they were doing the course. And the Government would still have 22.7 Billion Pounds to spend into the Economy.

        Why did they do it? Because if one Bank Fails the whole system fails. The advantage – in my mind of the PositiveMoney proposal – is that Sovereign Money creation would create an infrastructure in the Economy where no individual business would have a monopoly of control and as a Bank would not be able to create money or destroy it, a Bank – like RBS – could be allowed to fail. We would not need regulators – just Police to monitor criminal activity.

        The Money System should be like the road network, an infrastructure provided by the Government (i.e. the Public) that everyone has equal access to without being charged for it’s use by a Private Company. This would eliminate Moral Hazard as a Bank could not covertly demand a bailout with the implicit threat of bringing down the system. Banks will still lend money and charge interest but the money itself will be created and deposited by the Public.

        Banks would have to compete for our savings in order to make loans, and they would be compelled to analyse risks a lot more closely as they couldn’t shift the blame onto agencies like the FSA or FCA and they could no longer shift the risk onto the public and people like University Students, who are now paying the price of their risky behaviour.

        With Investor Accounts, the risk is shared by the Investor and the Bank – not the Government. Depositor accounts will not need Depositor Insurance as there will be no risk to just holding money at the Bank, only if that money is invested by the Bank with the consent of the Investor. That, after all, is how a Capitalist Market Economy is supposed to work, without privilege or favour.

        There would be less need for State Intervention and less need for Regulation. If a Bank can’t give you your money when you ask for it – under the Sovereign Money system – it means they’ve stolen it. Banks runs would not occur as all the Depositor money would be accounted for by the Bank of England, so if the Bank goes bust – who cares? The accounts would just be transferred to another Bank of our choice. No Bailouts.

  • Chris Killer

    “This framework should reassure financial markets and investors that the government is about to go on a Zimbabwe-esque spending spree.” I think you need a ‘not’ in there somewhere Ben!

    • Mira Tekelova

      Thanks for spotting this Chris, it’s corrected now.

    • Mira

      Thanks for spotting this Chris, it’s corrected now.

  • Stamatis Kavvadias

    Excellent article! I did not yet get to the point of the video where Leadsom speaks, but I enjoyed your article Ben.

    I have a serious (non-political) concern on a point you make in this article for the first time:
    “The stock of money in the economy would always be growing at some rate,
    and the Committee’s job is to make that rate faster or slower.”

    That is not correct. I mean, you cannot precondition the future on the constand need to create more money. What if …a war occurs (lets hope not) and lots of money gets created, but after the war’s end money needs to be removed from the economy, along with excessive military infrastructure? What is climate change forces de-growth on the global economy? What if there is a reckless Money Creation Committee that, somehow, convinces it needs to create lots of money, but turns out to be wrong? What if there is some other kind of crisis? Reversely, making such a provision you impose the precondition of growth in the minds of the Money Creation Committee members! But the most likely proper way for the global economy, as resources get depleted, is likely to be to stagnate and improve in effectiveness and efficiency (i.e., we need to turn to sharing!).

    You need to seriously think about cases that the MCC will need to require from the government that money is withdrawn from the economy. Obviously, that will be the time for austerity. This is not a bad thing to incorporate in PM proposals: it simply suggests that money will be made to work as we expect them to work today, but they don’t because of private money!!!!!

    • Stamatis Kavvadias

      On the flip side, I do understand now that it is not in the campaign’s interest to also ignite a debate with those who unwaveringly believe in perpetual growth. Especially when withdrawing money from the economy does not require any special provision for a sovereign money system. It only needs to enforce additional taxes, which will not be popular, as the current situation is not popular, with banks not lending, in effect reducing the money supply as previous loans retire (destroying the capital).

  • RJ

    2) “If the central bank had the power to finance government’s
    policies what would the implications be for the credibility of the
    fiscal framework and the governments ability to borrow from the market
    if it needed to?”

    Ben still does not seem to understand how the current UK treasury system works (but many economists do not either but that is no excuse). The UK Government DOES NOT borrow money (issue new Govt bonds) to spend. It issues new Govt bonds to either roll over debt. Or drain reserves from PREVIOUS deficit spending.

    When any monetary sovereign Govt spends (pays someone) like the UK Govt it ISSUES NEW CENTRAL BANK RESERVES. Govt bonds are issued to drain these reserves. If these bonds pay more interest than reserves the Govt will ALWAYS have a buyer. That is the banks will buy these bonds as they will earn more interest

    So in effect the UK Govt ALREADY has the power to create new money. IT ALWAYS CREATES IT WHEN THEY PAY A COMPANY OR PERSON. Reserves via the BoE and bank credit via the Banks.

    Euro countries do not have this power (like we don’t or state Govt’s or companies don’t). If PM is proposing taking this power away from the UK Govt then its creates a Euro type situation that could be awful for the UK. We could become like Greece or Spain where a committee decides what’s best for the UK. And the people are powerless to do anything

    • GuyHarper

      RJ, you have made this argument many times, and I have read several other blogger’s posts already that disagree with it. Indeed, I have pointed out in a previous thread that your description of the system by which the government spends is simply a word for word copy from the MMT text book (presumably Warren Mosler’s 7 Deadly Innocent Frauds)?

      There are several things wrong with the MMT description of government spending as described by Mosler. The main issue is that MMT describes an idealised system that is not actually based on reality! They describe the government’s spending of digital currency as though it is equivalent to their minting and spending coins into existence like they did in the good old days – but in this case immediately followed by taxation and/or bond issuance to drain any excess reserves and curb inflation/devaluation. The government spending process does not actually occur in this way though, however convenient it would be for MMT theorists.

      In reality (currently), the government must obtain money from somewhere before they can spend. The MMT view that tax money is destroyed and only collected in the first place to drive the currency is factually incorrect, and you can find accurate descriptions of the real process by which taxes are collected and re-spent if you care to look for them.

      Spoiler alert – the government has an account at the BoE called the consolidated fund, and businesses and individuals make tax payments to the government account (consolidated fund) through self assessment or the PAYE system (both facilitated by credit transfers and reserve transfers by private banks, as with all payments).

      A shortfall in the consolidated fund IS made up by the issuance of gilts before the government is able to spend. There is a more detailed and accurate description of this process in the book ‘Where Does Money Come From’, available from this very website.

      Have you read the book? If so, do you dispute the authors account of the government spending process in exchange for a throwaway line in an MMT text book, which in any case is based on the US banking system?

      If your understanding of the UK government spending process, summarised as ‘government first spends, then drains excess reserves by issuing gilts’ is correct, can you point us in the direction of the source of this knowledge? I really hope it is not ‘MMT 101’…

      • GuyHarper

        * I have agreed with the ‘bonds drain excess reserves’ interpretation in previous threads, as in some contexts it makes little difference whether bonds are issued before or after spending because the effect on the money supply is the same.
        However, when you are using this point to make a direct technical challenge to the proposals in this article, I think it is worth challenging.

        • RJ

          Guy. This is the key. And it explains why you, and many other are confused when you state this “In reality (currently), the government must obtain money from somewhere before they can spend.”
          This does not mean monetary sovereign Governments like the UK might run out of money if the market does not buy their bonds But many can not see or understand the difference between a monetary sovereign Govt and a company’s or their own finances. Its a block that stops many seeing how it all fits together. And make comments like you have about MMT (that you must know are not correct). In this respect I understood how it all worked before even knowing MMT existed. But MMT factually explains how the UK and US treasury system works. And the conclusions they make from this are 100% correct. The UK will never run out of money. And can spend what they like. And will always be able to sell bonds (called borrowing) to the market (or banks). For many reasons. The BoE would never stop the UK Govt spending even if their consolidated fund was in overdraft (they could easily just credit the Govt account and would do if required. As the ECB have done with Euro countries at times). And secondly the banks have excess reserves (due to QE) so they will always buy bonds when the effective interest rate is higher than the reserves interest rate. One day you will see this (it took me years before it clicked. It certainly wasn’t helped by experts who were hopelessly confused). And if you ever learn double entry book keeping, and stop equating the UK Govt to a household, will be able to confirm it for yourself.

          • NickB

            After reading “where does money come from” by NEF I’m convinced that Guy is right that UK government spending does not create new deposits. I think where RJ is right is that the system *could* operate in the manner described by MMT. But that does not happen for political reasons, specifically provisions in the Maastricht treaty that specifically outlaw direct central bank monetisation of government deficit spending. So the system is artificially constrained towards fiscal policy ineffectiveness. Under Maastricht we have an abdication of monetary sovereignty whereas MMT as I understand it describes a system of monetary sovereignty.

            I’m not sure about RJ’s example of government funding indirectly financed by QE. But *IF* he is right about that it still does not follow that the government can finance deficit spending in this manner. Why? Because QE is a policy implemented by the BofE not the government and the BofE has operational independence. The reserves created from nothing and injected via QE were not spent into existence by the government in exchange for goods and services, they were created by the BofE. If that is all smoke and mirrors and in fact the BofE is the creature of the government then that has implications for this debate. But given the history of the BofE I somehow doubt that to be the case.

          • GuyHarper

            Agreed on all counts NickB. The Govt. would need full control of the BoE for MMT to work. Whether or not the BoE is as fully independent as it is claimed to be can be debated, but I’m not sure anyone would say it is linked closely enough to the government to monetise all new public spending in this way.

            I was a massive fan of MMT when I first discovered it and still feel that much of it would be compelling if it described the system accurately. I still can’t get past the fact that they concentrate so heavily on public spending and ignore private debt though.

          • RJ

            “I’m not sure about RJ’s example of government funding indirectly financed by QE.” I am right. QE clearly moneterises debt. There is no doubt whatsoever about this.

            But it makes no difference (bonds v reserves to finance UK Govt expenditure) as I have explained above. But Guy (and many others) just does not want to let strongly held beliefs go. People will hang onto their favourite beliefs no matter what evidence is presented to show they are flawed. Its just the way we are. So matter what evidence I present. It will make no difference.

          • Fran Griffiths

            It is very difficult to argue with you RJ because what you say does not make a lot of sense in terms of a sentence containing words that have recognized definite meanings.
            For example to take your sentence in the comment above
            “QE is an asset swap where bonds are swapped for reserves”
            who knows what you mean? Why should bond holders want to part with their bonds in exchange for reserves that they can’t use?
            In actual fact, in QE the Bank of England buys bonds in exchange for ordinary currency. In order to carry out this transaction the BofE exchanges it’s own currency.(reserves) for ordinary bank money a bit like when you change pounds into euros to buy something abroad.

          • RJ

            “exchanges it’s own currency.(reserves) for ordinary bank money”

            Where did you read this??? It wrong BTW

          • Fran Griffiths

            To put things very simply, (and I know that the process is complicated by bond markets ànd dealers ànd so on,) if I had a bond to sell to the BofE I would not want to swap it for BofE E reserves. I would have to be paid in ordinary money credited into my bank account.. The Bof E has reserves but I want money I can use. My bank has an account at the BofE. If the Bof E credits that account with reserves then my bank can credit my account with ordinary bank money.

          • RJ

            You sell the bond and receive money (bank credit) FROM YOUR BANK
            So you has a bond asset. And swap that for money

            But what about your bank?
            Your bank
            CREDIT Frans account (banks liability)
            DEBIT BoE Reserves (banks asset)

            And what about the BoE
            The BoE
            CREDIT Your banks reserve account (BoE Liability)
            DEBIT Frans Govt bond (BoE Asset)

            So in effect the BoE have swapped reserves for a Govt bond

          • Fran Griffiths

            OK…I agree. As a description of that part of the transaction you are right.

      • RJ

        “In reality (currently), the government must obtain money from somewhere before they can spend.”
        This is no more than an accounting step. Why. Because if the banks hold excess reserves (as they currently do and always will otherwise the whole banking sytem will grind to a halt). They will always buy Govt bonds when the effective interest rate is higher than their excess reserve interest rate. So this accounting restriction has no impact whatsoever. But Im sure you will see this one day. Many will not however and will continue to equate a monetary sovereign Govt to a household. And think wrongly that Govt debt is bad. Or the UK Govt can run out of money. Or that the

        government’s ability to borrow from the market if it needed to will be impacted in some way. Like non monetary Govt’s like Greece etc.

        • GuyHarper

          RJ, I feel like you are trying to dodge the main point in my comment by coming back to your point about people (myself included) not understanding the difference between ‘household constrained’ and ‘non-household constrained’ systems. I fully understand the point that you make about the government not being subject to the same spending constraints as a household, which is a different conversation. Can we stick to what I was asking you in my comment?

          To clarify, I am disagreeing with the assertion in your initial post above, which I will paraphrase rather than quoting in full. You assert that ‘the government does not borrow money to spend, it issues bonds to roll over debt or drain reserves it has already spent into existence’. You even used capitals to emphasise the idea that the Govt. “ISSUES NEW CENTRAL BANK RESERVES” when it spends. This is categorically incorrect and it is point I wish to discuss, as it seems to be the basis of your disagreement with the article.

          I have asked you to tell me where you learned this, because I am all for changing my mind when I am presented with new evidence.

          I actually (perhaps unsurprisingly) also disagree with the subsequent point you made this morning (directly above) where you state (paraphrased) that “the government having to obtain funds before it spends is a meaningless accounting step, because if the market doesn’t want to buy bonds, the banks always will, so long as the yield is higher than the base rate”.

          For a start I think this is a climb down from your original assertion that the government spends reserves into existence before it issues gilts. Are you now agreeing that the government does in fact obtain the funds first, before it spends, and just stating that this is unimportant? Or are you still saying that the reserves are spent into existence by the government and then drained by issuing new gilts?

          In any case, your suggestion that banks will always buy an unlimited amount of gilts at low interest rates if the market won’t is flawed.

          Gilts are sold through the Debt Management Office via an auction mechanism, almost exclusively to ‘Gilt Edged Market Makers’, who transfer reserves to the DMO’s Debt Management Account in exchange for the gilts (this is the primary market). The DMO then pass the reserves they have received through the DMA to the consolidated fund as per the governments spending requirements.

          The interest rate on the newly issued gilts is determined by the price the GEMM’s have bid for the gilt issuance to the DMO, and the price they are willing to bid is of course based on what they expect they can sell the gilts at a profit for on the secondary market.

          It is true that private banks may choose to purchase some of the newly issued gilts, and banks (and building societies) do currently hold around 10% of the gilts in existence today. But the idea that banks will buy all gilts issued by the DMO if the rest of the market won’t simply because the yield is slightly higher than the base rate is crazy. Think about it. How can the banks “always hold excess reserves” if they spend all their reserves on newly issued government debt?

          • RJ

            “Think about it. How can the banks “always hold excess reserves” if they
            spend all their reserves on newly issued government debt?”

            Ok I will address this very point. Because when I (finally) understood this it became very clear.

            Let say the treasury has nil funds in their BoE account
            And the banks hold excess reserves of 200 billion (due to QE)
            The govt sells bonds of £100 billion
            The treasury now has £100 billion in their BoE account
            And the banks hold excess reserves of only £100 billion

            The Govt spends this £100 billion
            The treasury now has £00 billion in their BoE account
            And the banks hold excess reserves of £200 billion

            It never stops. Why. Because BoE reserves are used by the banks and treasury to settle with each other. So excess reserves held by banks is a credit balance at the BoE. These are mostly obtained from initial Govt spending (where else can it come from). NB Reserves are a credit (liability) held by the BoE and a debit (asset) held by the banks or treasury. The BoE must hold assets like T bonds or bank debt to back these credit balances.

          • GuyHarper

            I see what you are saying above, and if your theory that the government creates new bank reserves when it spends was true, this mechanism you have laid out above would also be true.

            What I dispute is the very idea that is central to your argument, which is that government spending creates new reserves.

            I have already explained that no new reserves are created in the process of government spending. If the government needs funds for public spending and there is not enough in the consolidated fund to facilitate this, the money it needs is passed to the consolidated fund by the DMO. The DMO raises the funds to pass to the consolidated fund in a variety of ways, but the main method is by selling gilts.

            When the DMO sells gilts, the reserve accounts of the primary market makers are debited and the reserve account at the DMO (called the DMA) is credited. The DMO then passes the reserves from the DMA to the consolidated fund.

            At no point does the BoE create new reserves in the consolidated fund in order to facilitate government spending, in anticipation of gilts being issued to drain these reserves.

          • RJ

            “At no point does the BoE create new reserves in the consolidated fund in order to facilitate government spending”

            You can only understand this by understanding double entry book keeping.
            When the Govt sells bonds the BoE
            DEBITS Bank (say Lloyds) account (this is an asset reduction)
            CREDIT Treasury account (this is a treasury asset)

            When the Govt spends the BoE
            DEBITS Treasury account (this is treasury asset reduction but BoE asset)
            CREDIT Bank account (this is a treasury asset but BoE liability)

          • GuyHarper


            You tell me I don’t understand double entry book keeping and then use this simplified example to prove your point? You didn’t even show how reserves are (apparently) created in this process.

            Double entry book keeping is about assets and liabilities. I’m sure you understand this. Let’s talk then, about what happens to central bank assets and liabilities when the government issues gilts (spoiler, they do not change).

            Central bank reserves are liabilities of the BoE, and assets of whichever banks and institutions hold positive balances in their respective BoE reserve accounts. On this point, I’m sure we must agree.

            Let’s continue to use your example.

            The DMO sells some gilts, and these are purchased by Lloyds bank. So what’s going on the balance sheets…

            The reserve account of Lloyds bank is debited and the reserve account of the DMO (the Debt Management Account, or DMA) is credited with an equal amount of reserves. On this point you are correct. However, you are wrong about the implications of this. This transaction does NOT represent an asset reduction for Lloyds. Lloyds is simply swapping its existing asset (a reserve balance) for some gilts (another asset of equal value at the time of the transaction).

            What about whether or not this double entry book keeping transaction creates new reserves, which was the point you were trying to make but did not address in your example?

            The BoE reserves are moved from Lloyds account at the BoE to the DMA (the account of the DMO). From the book keeping perspective, the BoE liability remains completely unchanged, the liability has simply moved from one BoE account to another.

            This transaction does represent an increase in assets for the private sector in the form of new savings and a liability for the public sector in the form of a new debt, but it does not create any new reserves. This is why MMT accurately states that government borrowing is equivalent to increased private sector savings, at the expense of public sector debt.

            What about the other side, when the government spends? What happens to the liabilities of the BoE? They simply move from the consolidated fund (where they have been passed from the DMA) to the reserve account of whichever bank the government is making a payment to. Again, no increase in BoE liabilities (reserves) going on here.

          • RJ

            “but it does not create any new reserves”

            It creates new or additional reserves for the banking sector (the banks asset). And new or additional money for us (the banks liability).

            But you understand the journal entries. But seem to be confused about the implications of this. And make comments like this
            “The main issue is that MMT describes an idealised system that is not actually based on reality!” When MMT is in exact agreement with your above explanation.

            I don’t think we will ever agree on this point. And seem to be going around in circles. Although I firmly believe that MMT is 100% correct when describing the current system. They accurately describe the banking / treasury payments system. And I believe some want to find fault with MMT for no good reason. Its a shame because clearly understanding how the current system works is a key first step to improving it.

          • GuyHarper

            It doesn’t create new/additional reserves for the banking sector! All it does is move reserves from a banks reserve account, to the treasury’s reserve account, and back to another banks reserve account. Private sector savings are increased and public sector debt is increased. I think I demonstrated this pretty clearly. Obviously not clearly enough.

            I think whether or not it creates additional money for us (by which I assume you mean the private sector), depends on what you would consider to mean ‘money’ (a woolly term). Where you consider the new gilts to be money, they are not the BoE’s liability, they are the treasuries liability.

            I describe the process as adding to savings, not to the money supply, but we certainly benefit by more public spending taking place as a result so it can be argued both ways. My point though, is that you (and MMT in general) are incorrect on the point about the treasury spending money by creating reserves, which are then drained by the issuance of gilts.

            MMT is not in agreement with my explanation. I said that MMT describes and idealised system that is incorrect because new reserves are not created by public spending. MMT describes the government spending process in the same way you do, and that process is not the same as the process I have described.

            The difference is that reserves are not spent into existence by the government. They are moved to the government account, then back out again. This difference is important, because it forms the basis of many of the objections you have made on this blog.

          • RJ

            “It doesn’t create new/additional reserves for the banking sector!” ???? UK Govt spending clearly does. But you are still treating the UK Govt as a household with an account at a bank. That pays someone else Like I said its going around in circles now. so will sign off on this.

          • GuyHarper

            OK, probably best. We have covered a lot of ground but continue to go round in circles.

          • GuyHarper

            “It creates new or additional reserves for the banks (like Lloyds) and less for treasury. Where reserves are moved from the treasury account to the banks account. Really all the BoE is just a scorekeeper where the total score (reserves held) always equals nil (except for other assets held like Govt bonds or bank assets).”

            I think you added this paragraph after I already replied below? The process does not create reserves, it just moves them around.

            The BoE is indeed the score keeper for payment transactions, and the reserve balance in aggregate is not changed by government borrowing. If you are agreeing with this now, then are you going back on your claim that government spending creates new reserves?

          • RJ

            “Or are you still saying that the reserves are spent into existence by the government and”
            The spending must come first. To create the reserves so the banks can then settle with the treasury. I guess the BoE could create new reserves backed by say a bank guarantee. But this is not the current situation in the UK. Banks hold excess reserves due to monetarised Govt debt. And this debt arose from UK Govt spending. So clearly spending came first (and if it didn’t the BoE still has the power not the banks as they need reserves. This is very different to Euro countries)

  • SteveB

    This is great, Ben Dyson answering questions raised by the City Minister- it really feels as if the defenders of the current system should be obliged to respond to these points.

    Her questions are very well answered here in my opinion (only wish it was proof read more carefully…)

  • Hestal

    Your answers to Andrea Leasom’s are good ones. I read the sample material from your book this morning and I just bought a Kindle version of it which I will read over the weekend.

    I wonder why you have more than one bank in your new banking system. It seems to me that the “many banks” approach has proven beyond question that it doesn’t work for the common good. I follow the blogs and books of the leaders of what is called “Modern Monetary Theory” over here, and they are slaves to the current banking system. The ideas you propose are miles ahead of those over here, and they are better developed as well. But they are nevertheless too timid.

    I don’t know about your political system, but over here the implementation of a new banking system would first require a significant change to our political system. A debate such as the one you are discussing would be impossible over here. The bankers are in control and they will not give up without a fight. As a result our light for reform is in eclipse while your shines brightly even if only by comparison.

    • Fran Griffiths

      Hestal, have you come across the American Monetary Institute? They started in 1996 and as far as I can see from their website have similar ideas and aims to Positive Money. I read a great criticism of MMT by Joseph Huber on that site.

      • Hestal

        I did not know about AMI. Thanks. I had followed Kucinich’s ideas a few years ago, but somehow he dropped from my radar. I liked a lot of his ideas but he had no hope of ever getting traction. Unfortunately, charisma is more important than good ideas in our politics over here.

        MMT is a dead end–not the basic idea, but as a program that is moving forward. Although I did see one of them on a video presentation a month or so ago that showed a little more realism.

        In my working life I designed hardware and software systems for large enterprises, and as a hobby I studied our institutions from a system design standpoint. They include the ideology-based institutions: government (American), religion, education, economics, business and the fact-based institutions: science, technology, engineering, and mathematics. By applying the basic operational principles of the latter I have designed changes to the former. It has been fun over the past sixty years.

        Even before that hobby started, I grew interested in our institutions when my father and some of his friends began to discuss an hypothetical financial system in which the Rocky Mountains were made of pure gold–an unlimited supply of money. They worked in “bull sessions” for several years starting in 1949 to plan a new economy. I was just a boy when they started doing this and I thought that is what all grown men did–boy was I wrong. But it was too late, I was hooked.

        Thanks for the info.

        • Fran Griffiths

          Hestal,That sounds very interesting. It seems that ideas for reforming money and the economy were thriving in the first half of the last century. I am thinking particularly of C H Douglas and his social credit movement in this country. I am optimistic that we can do it this time because of the power of the internet and social media and because of the international character of the impetus for change.

          • guggzie

            Hi Fran, it is good to see that C H Douglas’s ideas are still alive in the minds of some people, but I think we can go even further back to 1863 and Abraham Lincoln who clearly understood the issue President Lincoln had the answer and he used the authority of his Government to create the US money supply known as the “greenbacks.” His answer to the critics is the answer we should get from our politicians:

            “The government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers….. The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government’s greatest creative opportunity. By the adoption of these principles, the long-felt want for a uniform medium will be satisfied. The taxpayers will be saved immense sums of interest, discounts and exchanges. The financing of all public enterprises, the
            maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be the master and become the servant of humanity. Democracy will rise superior to the money power.”

          • Fran Griffiths

            Lincoln was truly a great man – as the Americans themselves recognize, but how many are familiar with those words that you have quoted?
            The Social Credit secretariat is still going. They have a website. He is not forgotten.

          • Hestal

            guggzie: Thanks for the Lincoln quote. Do you have a source?

          • guggzie

            I will have to do some back checking on that, but I think it came from an article on the “greenbacks”. There was another quote I saved as well – a comment in the London Times of 1865 – “”If this mischievous financial policy, which has its origin in North America, shall become endurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and be without debt. It will have all the money necessary to carry on its commerce.It will become prosperous without precedent in the history of the world. The brains, and wealth of all countries will go to North America. That country must be destroyed or it will destroy every monarchy on the globe.”
            Hazard Circular – London Times 1865

            This is the references I have for the quotes
            1.Lincoln By Emil Ludwig 1930, containing a letter from Lincoln, also reprinted in Glory to God and the Sucker Democracy A Manuscript Collection of the Letters of Charles H. Lanphier compiled by Charles C. Patton.

            2. Abraham Lincoln. Senate document 23, Page 91. 1865.

          • Hestal

            Thank you very much, I will use these quotes for a good purpose.

          • RJ

            I don’t think the London Times of 1865 quote is genuine.

          • joebhed

            Well said.
            Totally agree.

        • RJ

          Gold as money is a dead end. Time to drop this idea and move on.

          • Hestal

            RJ, my father and his friends were not talking just about gold, they were talking about an unlimited supply of it. They used Rocky Mountains made of gold as a metaphor to enable them to begin to describe what an economy would look like if it had an unlimited supply of money. They discussed this idea from the summer of 1949 until I went away to college in 1957. I have been stuck on this idea, unlimited money, ever since. Over time as I saw many examples of how a limited supply of money was bad for the people, and as I saw the advent of technologies such as the computer and the Internet, and as I spent my working life applying such tools to large systems for large enterprises, including government, capitalism, etc. I continued to develop the ideas I heard them discuss decades before.

            The net of all this became organized around four eternal questions that I learned from my mother way back then: Where do we stand? How did we get here? Where do we want to go? How do we get there from here? Most sites I visit have made some attempt at answering the first two questions with respect to a new economic system, and some are beginning to discuss the third. This site is one that is well into ideas about the third question, and they are also ahead of most sites in organizing to develop an answer to the fourth.

            It is very interesting to me that this site and others want to cling to the banking system, modified somewhat of course, but nevertheless with private bankers who are, I suppose, to be highly regulated. There are other examples at other sites. I believe that many banks is a very bad idea just as it has been since the beginning.

            What is missing here and in other sites is a clear discussion of human nature, its adverse effects on our national systems, and how to control these effects. Only a clear understanding of human nature will enable us to see how our systems should be structured. Our problem is not the bad systems we have, but why do we have them at all? Human nature is the cause and this is becoming better understood by science.

            But I have gone too far away from your observation that gold is a dead end. You are right of course and many have had that idea before either of us was born. My father and his friends imagined that gold was not scarce but infinite, and then they asked what would then happen. They found that little changed: they found that an artificial scarcity of gold, or its substitute, would be created, which is of course is just what happens here in the U.S.

      • RJ

        Fran. I have read this article. The writer does not understand how the treasury system connects together. Comments like this
        “Today, it is primarily the banks that decide if and how much money to create” is just not correct in regard to US Govt spending. Banks need reserves. Without them they fail as a business. They can only get them from the Fed. The Fed is Govt controlled. But at least MMT is getting the recognition it now deserves. Even if some fall over themselves trying to discredit it

        • GuyHarper

          The amount of credit money banks create has nothing to do with government spending. This is true but isn’t it irrelevant, since the quote is talking about banks controlling the issuance of new credit money, not the government? I haven’t read this article (just the quote) so perhaps I am putting my foot in it here, but the primary criticism of MMT, which is absolutely valid, is that it ignores the idea that credit money issued by banks is destabilising.

        • joebhed


          It is MMT that falls over itself trying to shoehorn its myths into modern monetary understandings. For instance, after you first claim that the Director Dr Joseph Huber,
          Professor of Economic Sociology at one of Germany’s most prestigious
          universities “does not understand how the treasury system connects
          together”…. (Whatever that means ) …you then post a quote from Dr. Huber ….””Today, it is primarily the banks that decide if and how much money to create””, …… a quote that everyone, including the BoE, acknowledges,…… and then without any basis or any proof you make the claim that Dr. Huber’s statement….. “” is not relevant in regard to US Govt spending.””
          Here’s a clue, RJ.
          The statement you quoted by Dr. Huber does not in any way relate to either Treasury operations (or how the Treasury system connects together) or to government spending.
          Dr. Huber’s quote is about the banks deciding how much money to create and issue. This matter is well satisfied as a verified fact among Positive Money’s readers of the Jackson – Dyson book on Modernising Money.

          Whenever MMT gets bombarded with real facts that destroy its operative myths, it runs for cover under the ‘reserve system’ because they think that nobody else understands that system. This is only partly true, because almost nobody else cares about that system, it being irrelevant to developing progressive public fiscal and monetary policy. But I care, and I do understand it.

          The entire reserve system is a throwback to the gold standard, only necessary to the degree that money is created as a debt. As soon as we change that dynamic, reserves will become part of monetary history and not occupy its ‘present’. MMT’s myths will be left exposed.

          It’s no wonder that MMT is getting the come-uppance it deserves.
          I suggest that MMT believers ask Dr. Huber to debate the paper from the New World Economics Review so that people can see for themselves where the truth lies.

          • RJ

            Joebhed. MMT are spot on with their understanding of the banking and treasury payments system, the role and importance of central bank reserves, why Govt bonds are issued and so on.
            Are you somehow connected with this site? I notice you have posted comments on this article. Can I suggest you read CAREFULLY again the comments posted by Tokugawa “the paper seemed to misrepresent some MMT positions that it criticized, in some cases stating pretty much the opposite of MMT via Mitchell. This is nowhere clearer than in:…” And no I don’t want to debate this again with you. Just read the comments that tokugawa posted with an open mind. And I stand by the comment I posted above.

          • joebhed

            I am not officially connected with this site, but having met PM founder Ben Dyson well before he started Positive Money, and considering him a friend, I am usually welcome here, unlike on the MMT sites where they cannot deal with deeper criticisms, and thus choose to censor my participation in their discussions.
            These tactics are evidence of desperation in hiding MMT’s MANY flaws, and history will not treat them kindly.
            Where do I find the Tokugawa comments, as I did not find them on the comments page associated with Dr. Huber’s article?
            Of course you stand by your above comments, MMT never abandons its meme-based rhetoric. And, of course, I stand by my criticism of it as both wrong and irrelevant.
            Sorry, MMT is dead wrong about why governments must borrow its money from private banks…. just plain wrong. The government has been doing that borrowing since there was a Treasury office, so it is obviously NOT to set interest rates in capital markets, nor is it for the purpose of meeting the liquidity preferences of holders of monetary assets. On one page Warren Mosler say the Guv should abandon borrowing, as does Bill Mitchell, correctly claiming that public debt is a private corporate subsidy.
            So stick around and I guarantee that MMT will get the coverage it deserves….. in spades. .
            before . . .

          • RJ

            Joe. Not this site. The American Monetary Institute. And I can understand why a MMT site might censor you. You do go on a bit about MMT. And are often confused about this subject “NOT to set interest rates in capital markets” Its on reserves I believe, Or it was once. Re Tokugawa.

          • joebhed

            Say, RJ.
            I am never confused about the subject of MMT for the things
            that matter.
            Like, for instance your glib reply insinuating that my
            comments about interest rates being set in capital markets was somehow evidence of being ‘confused’ about MMT.
            Something silly about reserves.

            RJ, ask yourself – who sets interest rate targets, and acts
            to achieve those rates?
            Fed OMC.

            What is the Fed OMC?
            Open MARKETS Committee.
            What is their primary tool, besides buying and selling
            “marketable’ public debt?

            I understand both the actual money system and the MMT
            I try to keep them separate.

            I am not officially connected with AMI, just a knowledgeable
            group with which I am associated. They did award me a Citation of Merit for the quality of my work in advancing real monetary knowledge here on the Intertubes.

            I will check out Tokugawa’s comments….

      • montmorency

        Couldn’t find the Huber article, but found this which is quite interesting:

  • Marco Saba

    On February 2015 the movie on the CLEARSTREAM AFFAIR will be aired in France. It tells how interbank clearing facilities are employed to launder the phantom-money created by banks. Here is the trailer:

  • Vince Richardson

    Further to the Middle Aged White Men jibe about a future MPC creating
    all our money.Besides the current MPC being exactly that,why does
    Andrea Leadsom not have a look at those who are currently deciding on
    how much money this country gets.

    So here is the board make up of our High St banks…..

    Barclays,…average age 60 yrs, 2 out of 21 board members are a women.

    RBS ,….average age 58.5 yrs,3 out of 12 board members are women

    Lloyds bank…. average age 52.2 yrs 1 out of 5 is a woman

    HSBC… average age 56.4 yrs ,6 out of 21 members is a woman.

    Santander ……average age 65.4 yrs ,3 out of 25 members is a woman.

  • Lukesishwasher

    Well said Ben. I can’t help thinking that the last crash brought everything Andrea Leadsom had ever dreamed of and more; why would she and her advisors ever want to change the system as it has worked so well for her and her demographic? It was made clear in the debate there were certain benefactors from the measures put in place after the crash of 2008, unfortunately these very same people will put up spurious and intentionally confusing resistance to these proposals. How much longer can you keep class, age, privilege and politics out of this debate? Can this be isolated much longer from Russell Brand’s revelations on ‘the Trews’ [see Youtube} and Max Keiser on RT and the Anonomous movement? I do wonder.
    Keep up the fantastic work, momentum is growing.

  • daviebob

    Great work by Posative Money!

    “Give me control of a nation’s money and I care not who
    makes her laws”
    Mayer Amschel Rothschild.
    How right he was.
    We have allowed the banks to commit LEGAL FORGERY!
    We rescue them with tax payers money!
    We must regain control of the Sovereignty of our money.

  • Douglas Kell

    Excellent stuff, and hopefuly HMG will answer and engage in further debates (parliamentary and otherwise). But the ‘quacks like a bank’ issue (which hedge funds and mortgage lenders are) is precisely what happened in early 80s when Reagan, swiftly followed by Thatcher, DEregulated them. So the evidence is there. We also need to redefine economics teaching in Universities – see link at

No Announcement posts

back to top