Making Money Work (Video)

Home » Blog » 2016 » January » 27 » Making Money Work…
adair turner fran boait making money work

On Monday 7th September 2015, Positive Money hosted a high-level panel discussion, “Making Money Work”, with Lord Adair Turner, Professor Steve Keen (Kingston University) and Chris Giles (Financial Times) in Central Hall Westminster. It was the biggest event on monetary financing that has ever taken place.

The event was attended by around 200 people, including leading figures in finance and civil society. Those taking part included Richard Murphy, advisor to Jeremy Corbyn, Natalie Bennett, leader of Green Party, as well as ex-banker and economics commentator Frances Coppola.

Lord Turner gave a talk on how the monetary system works, the dangers of debt-fuelled growth and monetary financing as a new monetary policy tool that should be considered by governments and central banks.

After his presentation, Lord Turner was joined by Professor Steve Keen, Head of School of Economics, History and Politics at Kingston University, London and Chris Giles, Economics Editor of the Financial Times. The discussion was focused on the question “Can innovations in monetary policy promote long-term prosperity?”

Watch here:

 

 

Stay in touch

Trackback from your site.

  • RJ

    Good introduction Fran. Lord Turner is a good speaker.

    • Well RJ.
      I found myself in the unusual position of agreeing with something you posted – your applause for Adair Turner.
      Haven’t a clue why you took issue on the difference between ‘banking’ and ‘banks’ because, as always, you do not explain your assertions or proffer evidence or links to back up what you say.
      But still, it is your opinion and you are entitled to it.
      And then I read your next post

      Same old, same old RJ (qv)

  • RJ

    Chris however doesn’t seem to have a clue. And that’s part of the issue. Financial writers who are clueless. As many are. There needs to be a a lot more educating done.

    Steve Keene I also think does not know what he talking about on debt. It’s likes comparing a very smart man (Lord Turner) to two children trying hard but are confused about it all. It’s quite amazing really. And a bit concerning. The gap is huge. And Steve and Chris are unfortunately like the majority of writers and economists. Lord Turner is the exception.

    • Yes, same old RJ.
      Unexplained and unsupported dismissive criticisms and assertions.

      Ah well.

  • PJM

    I have transcribed a portion of what Adair Turner said in his address, near the beginning:

    “I think Positive Money is an organisation that has rightly focussed our attention on some of the really fundamental issues in economics, about the nature of money and where purchasing power comes from. Now I don’t actually agree with the extremely radical proposal that Positive Money supports, which is to entirely abolish what are called fractional reserve banks and only have what are called 100% reserve banks, but I do believe that it is impossible to understand why the 2008 crisis occurred, and even more, why the recovery from that crisis has been so extraordinarily difficult and slow, without addressing those fundamental issues about the nature of debt, the nature of credit, the nature of money, and where purchasing power comes from, which Positive Money have encouraged us to think about.”

    I am concerned to learn that Adair Turner, in that address as quoted above, has misrepresented what Positive Money’s proposal actually is.

    He mistakenly claims that Positive Money proposes “to entirely abolish what are called fractional reserve banks and only have what are called 100% reserve banks”.

    Positive Money does not propose “to entirely abolish what are called fractional reserve banks”. Rather, Positive Money proposes pass legislation to switch banks from being money creators, to becoming money lenders.

    Firstly, it is very important to understand that Positive Money does not propose that any banks would be abolished, as Adair Turner seems to claim.

    Secondly, it is very important to understand that Positive Money does not propose that banks would become 100% reserve banks, as Adair Turner claims.

    Rather, reserves – I.e. central bank reserve money for settlement between banks – would cease to be required, because the Positive Money proposal is for there to be only one kind of money – cash – albeit in three forms: coins and notes (unchanged from those presently circulating) and electronic cash, ALL created by the government-owned central bank (in the UK’s case the Bank of England), free of debt and free of interest, and gifted to the government for it to spend into the real economy according to its democratic mandate, with a more-or-less corresponding reduction in the total tax take. Electronic cash would be created at a rate just sufficient to match economic growth, thus keeping inflation within the target band set by the government.

    As a consequence of being required to pay less tax, people and businesses would have more money to save and/or invest, and banks would have to compete with other entities to borrow that saved money in order to on-lend it to those who wished to borrow it. Banks and other financial intermediaries would have to earn an honest living from the margins between the interest rates that they paid savers and the interest rates that they charged borrowers. No individual, or committee, would set interest rates – they would be left entirely to market forces.

    • PJM
      You make your two points and I agree with the first – that PM does not plan to close banks.
      They just would have them on the same playing field level as everyone else by taking away their power to create money instead of being a mere conduit pipe the money from depositors and borrowers.
      So far, so agreed.
      However, it is inevitable that some banks will have to close.
      There is a wonderful pool of profit sloshing around in the banking system that pays the Riches of Croesus to the big bank bosses.
      This profit pool will dry up if banks can no longer hire out the money (via charging interest) on the funds they have created.

      Your second point is that PM does not propose that banks become full reserve instead of fractional reserve.
      Well, in fact, is that not the inevitable consequence of the above?

      • PJM

        The term “full reserve” implies that there are reserves. In a Sovereign Money banking and monetary system, as proposed by Positive Money, there would be no reserves, and hence no full reserve, aka 100% reserve, banks. Perhaps because I am first and foremost an engineer, I prefer to use specific language so that there can be no misunderstanding.

        All those who are interested in further study of this topic are urged to read the explanation provided by Prof. Joseph Huber in his paper “The Chicago Plan (100% Reserve) and Plain Sovereign Money”, published in 2015. It may be downloaded as a pdf file from the home page of his Sovereign Money website http://www.sovereignmoney.eu/

        Here is an excerpt, beginning near the bottom of page 10:

        “Plain sovereign money in contrast to a 100% reserve

        It should by now be obvious that a 100% reserve still represents a complicated reserve system, difficult to understand and to keep control of. In contrast to this, approaches to liquid sovereign money are going beyond reserve banking. ‘Reserves’ there are no more, as there is no longer a split between interbank and nonbank circulation, with the banks holding the wild card in-between. There is no more M0 and M1, just one integrated supply of sovereign money M, circulating among banks and nonbanks alike in a direct, non- mediated account-to-account flow. Bank money will be phased out and replaced with sovereign lawful money, just as treasury coins and central-bank notes already are. Deposits in M2/M3, in contrast to the present situation, will become real deposits, in actual fact an investment, a customer loan to a bank, partly securitised, partly non-bonded. Banks will actually obtain means of financing from such deposits.

        Sovereign money does not need to be backed up by further monetary or financial items. The sole coverage any fiat currency needs is a productive and competitive economy delivering the goods and services money can buy. Up to a certain point, banking and the financial economy are an indispensible part of any productive and competitive economy – as long as financial business volumes do not disproportionately blast off (inflation, asset inflation, bubbles), exceeding critical thresholds in relation to real GDP.

        Sovereign money will exclusively be issued by an authorised state body, in Europe by institutionally independent national central banks, or the ECB. The terms money and currency will take on a same meaning since there will be no more categorial difference between cash-on-hand and non-cash money-on-account. The biggest part of new, additional money will normally be issued long-term. This should be done through genuine seigniorage, i.e. spent into circulation through public expenditure. The smaller and short-term part can be issued through central-bank credit to banks as well as to the treasury, the latter certainly in accordance with well-defined fiscal rules. In a plain sovereign-money system the central bank has pro-active, immediate and effective control of the money supply.

        In a plain sovereign-money system today’s current accounts will be actual money accounts. The money will no longer be a deposit in a bank, but a customer’s property, managed by a bank or specialised service bank on behalf of the customers, or, with the spread of online banking, in fact by the customers themselves. Payments onto or from money accounts are no longer part of a system of clearing of bank liabilities and final settlement in reserves. Instead, there will be a direct point-to-point flow of liquid money. Customer money accounts are no longer part of the banks’ balance sheets. Money can of course be lent and borrowed, but, in contrast to bank money, sovereign money in itself will in no way exist as a liability, i.e. as a debt. In any bank and nonbank balance sheet money will be a liquid asset only. Money creation will be a function separate from lending and finance, the first being the constitutional task of central banks, the second part of the banks’ business.

        In a plain sovereign-money system commercial banks are just money intermediaries, no longer holding a wild card in monetary affairs in that they participate in the interbank and public traffic at the same time. They may continue to be service banks in the sense of managing customer accounts, payments, and providing cash and foreign exchange. Perhaps banks will continue to be money investors themselves (proprietary trading) or full-fledged investment banks. The basic difference is they will no longer have the tacit license to print money (a tacit license, by the way, which up to the present day is without explicit legal foundation). Banks will thus no longer be able to create themselves the money on which they operate. For the rest, though, banks can and should be free to do what they are able to do.

        Unlike under a 100% reserve, in a plain money system banks would not have to face higher financing costs. The reason is that the interest they pay on deposits, certificates and bonds would actually provide them with liquid money (rather than immobilise bank money as is the case today).”

        • RJ

          “The sole coverage any fiat currency needs is a productive and
          competitive economy delivering the goods and services money can buy.”

          Sorry but this is just nonsense. Its misinformation to lead genuine reformers down the wrong path. Continue down this path and being discredited is the only outcome.

          If it sound too good to be true it likely is. No one can give something worth just because they decide it is. Not even a Govt. As for example Zimbabwe has found out. UK reserves / sovereign money would only have value if its backed by the UK Govt (with the ability to collect tax). And they would record this obligation as debt. The reserve / sovereign money holders as an asset could exchange these otherwise worthless entries on a computer screen for tax owing. This and only this would give sovereign money / reserves its value

          • PJM

            RJ, you’re up to your usual tricks!

            I’ll begin by noting that in theory, theory and practice are the same, but in practice, they’re not!

            You have ignored the qualifying sentences that Prof. Huber wrote following the sentence that you quoted. Here they are:

            “Up to a certain point, banking and the financial economy are an indispensible part of any productive and competitive economy – as long as financial business volumes do not disproportionately blast off (inflation, asset inflation, bubbles), exceeding critical thresholds in relation to real GDP.”

            What is written on banknotes issued by the Bank of England? Is there a promise to pay, or is it just stated that “this note is legal tender for the sum of X pounds?

          • RJ

            Prof.Heber has written no more than a good (almost plausible) misleading story. Please don’t trust everything you read even by “experts” who seem to be on our side. Just renaming BoE reserves and instead calling them sovereign money does not somehow give them different properties. That are outside the rules of double entry book keeping and defy common sense.

            A financial asset even if it is called “sovereign money” is still a financial asset even if backed by a good story. And financial assets are without exception back by another entity holding the liability side.

            Get this and then everything slowly starts to fall into place. And you start to realize why these stories have been made up to mislead people. And why the Euro was introduced. The ruling elite hold onto their power by misinformation (lots of it). It’s that simple. Undoing the misinformation is the hard part.

          • PJM

            RJ, you wrote: “Just renaming BoE reserves and instead calling them sovereign money does not somehow give them different properties.”

            It seems to me that your reading skills are somewhat deficient. Huber, and indeed PM, does not just rename BoE reserves. Huber and PM’s Sovereign Money proposal eliminates reserves. They would cease to exist as they would have no purpose! Sovereign Money would simply be electronic cash, created ex nihilo by the BoE, for gifting to the government free of debt and free of interest.

            Where is the misinformation in that? What’s so difficult in understanding that?

          • RJ

            Because its exactly the same as BoE reserves. Reserves are simple electronic money (cash), created ex nihilo (by journal entries) by the BoE. But it’s currently only the banks and treasuries money. Our money is created ex nihilo by the banks. The only change is to remove level two bank credit money and replace it with level 1 reserves money for everyone not just the banks and treasury.

            So sovereign money is exactly the same in every respect as so called sovereign money. Except everyone will have an account at the BoE not just the banks and treasury.

            I’m telling you the truth backed by logic and sound reasoning but you prefer to hold onto ruling elite misinformation. As I did once. And many genuine people still do today. But then saw the light. More need to do likewise.

          • RJ,
            I really am sorry to deride you on these pages.
            It is completely against my deeply held principles of fairness and tolerance.
            But you really are your own worst enemy….

          • solutrean

            You are definitely an economic Neanderthal RJ. See the case of Germany in the 1930’s on a nearby article.

            The German government issued debt free money known as Labour Treasury Certificates to revive the corpse that was their economy and in a very short time the German economy was the strongest in Europe and possibly in the World.

            Obviously the Germans had not sussed out as you have, that it is not possible to issue money that is not backed by debt and instead went ahead and issued it in line with an increase in goods and services that contribute to GDP.

            I don’t think the once starving German consumers would have been all that put out to discover that the food they were now eating in abundance was produced by means of debt free money do you? Likewise the myriad of other goods and services that were now available to them and all done without inflation or incurring a debt.

          • RJ

            “The German government issued debt free money known as Labour Treasury Certificates”

            So you post this comment above. Yet you know full well this is not true. As it clearly states in the referenced article that they weren’t debt free. So this article clearly shows what DEBT spending by a Govt can achieve. All it needs is for monetary sovereign Govt like the UK to do the journal entries required. But you would sooner find an excuse not to do this and propose moving to impossible “debt free money” that will never happen. I wonder why you still push this so strongly when I have very clearly explained what the real situation is. And what power the UK Govt has today. And why MORE Govt debt would be great for the economy right now.

            From the article referred to
            “One billion non-inflationary bills of exchange, called Labor Treasury
            Certificates, were then issued against this cost. Millions of people
            were put to work on these projects, and the workers were paid with the
            Treasury Certificates. The workers then spent the certificates on goods
            and services, creating more jobs for more people…They were not actually
            debt-free; they were issued as bonds, and the government paid interest
            on them. But they circulated as money and were renewable indefinitely,
            and they avoided the need to borrow from international lenders or to pay
            off international debts” (p. 230)

          • solutrean

            In the original Ellen Brown article that the piece that you refer to is taken from it mentions several times that the money was issued free of debt.. Below is just one such example:

            In Billions for the Bankers, Debts for the People (1984), Sheldon Emry commented:

            Germany issued debt-free and interest-free money from 1935 and on, accounting for its startling rise from the depression to a world power in 5 years. Germany financed its entire government and war operation from 1935 to 1945 without gold and without debt, and it took the whole Capitalist and Communist world to destroy the German power over Europe and bring Europe back under the heel of the Bankers. Such history of money does not even appear in the textbooks of public (government) schools today.

            The only reason that I can see for the discrepancy is that Dr Schacht the original head of the German Central Bank and himself a banker, was replaced and the new man (Hitler himself?) introduced the debt and interest free money system.

          • RJ

            Ellen Brown often posts nonsense (her book was full of it. And don’t ever expect an answer from her on her blog). As I have said don’t be fooled by controlled opposition or dupes that are being mislead. Ellen is not on our side (nor is Bill Still).

            And the truth is in the article on this very site.

          • solutrean

            So everybody on parade is walking out of step except you RJ. I think there must be a medical term for your condition but I can’t quite bring it to mind right now.

        • RJ still wittering on I see…

          PJM,

          I read carefully several times your wholesale quote, searching for something that would evidence what you say.
          – that Lord Adair does not say that PM advocates full reserve banking.

          I was not able to find it.

          You also say:
          “In a Sovereign Money banking and monetary system, as proposed by Positive Money, there would be no reserves, and hence no full reserve, aka 100% reserve, banks”
          Why do you say that?

          It seems inevitable that if the Govt follows PM and makes all money creation the responsibility of the the Govt in the form of Sovereign Money, then the banks must, ipso facto, lose their powers of ‘Fractional Reserve Banking’ and end up ‘Full Reserve’.

          Perhaps it is the term ‘reserve’ whjch is the source of the problem – the definition is…

          “Bank reserves are the currency deposits which are not lent out to the bank’s clients.
          A small fraction of the total deposits is held internally by the bank or deposited with the central bank.”
          This fraction of real money left in the bank or kept in the B of E is the reserve of a bank and appears so in the balance sheet..
          When the bank only lends out what it has had deposited with it then it is ‘Full Reserve’ banking.
          Have I got that wrong?

      • Vince Richardson

        I think there is no doubt banks would shrink in size,but that is no bad thing.Our banks have become far too big as to pose a threat to national security never mind the national economy.

    • RJ

      Lord Turner is right. He understands fully the implications of PMs proposal. Call it what you like (sovereign money etc) but it will the same as BoE reserve. Just given a different name

      And debt free money is not possible. All financial asset (including money) are always without exception backed by debt. Its an inevitable fact of life. Like night and day. Bond free money is possible. As is interest free. But not debt free. Its not only the guaranteed outcome of double entry book keeping. But reflects the reality of what has happened.

      Take a simple example. The Govt buys a building. The seller wants something in return for this building. So the Govt quite rightly takes on a debt obligation. This applies in every situation. Either the Govt collects tax, sells an asset or issues a debt guarantee like bonds (direct) or indirect (notes / BoE reserves) to cover deficit spending.

      The only other option is for the Govt to force people to work or sell and get nothing in return.

      • Crash

        RJ, it becomes increasingly clear to me that you do not fully comprehend Lord Turner’s or Steve Keen’s statements.

        Firstly, there is nothing in the video that suggests even slightly that Keen and Turner have a different understanding of the mechanics of the monetary system.

        Secondly, Lord Turner repeatedly makes a distinction between debt financed and money financed deficits, one that you fail to make in your comments as your thinking is, put simply, stuck in a loop.

        What you don’t seem to be able to wrap your head around is to WHOM the government debt is owed. If you say that the purchase of government bonds by banks is an asset swap (cash for bonds) and then that also means that no new money is created in the aggregate as that would be a neutral redistribution from saver (bond holding banks) to borrower (governments).This leaves the private sector as the only entity able to create new money through new borrowing. In a world without a central bank this would mean that, unless the government had regular bank accounts with the banks which could extend credit like they do to households and business, creating new deposits in the process, there would simply be no way for a government to finance its deficit spending without reducing the money supply.

        Once you add a central bank and the ability of that bank to buy bonds directly off the government with newly created money you get the situation of overt monetary finance. Since the government owns the central bank, the JE debt that you keep repeating ad nauseum is a debt by the government owed to the central bank (aka the government again). Now I don’t know about you, but if I owe 10GBP to myself I’m not actually in debt. When a government runs a deficit of 10GBP it means it financed those 10GBP by selling bonds to the central bank, which did not have to sell any assets beforehand to aquire the money necessary for these bonds. These 10GBP are newly created, backed by government debt, to the central bank but they now can be spent into the economy to buy 10GBP worth of stuff or services. This is the essence of seignorage. The debt is owed to itself, while the money can be spend. Is that not debt free money to you?

        Positive Money, as well as Lord Turner and Steve Keen all accept this very simple truth. Positive Money (as well as Turner and Keen) just go one step further and say “well, since central bank financed government deficits are practically a debt owed to itself, the central bank can simply gift the government that money without increasing the government’s total debt as that debt would be owed to itself (aka the central bank) anyway. The reason for this is that the total amount of government debt does matter to some extent as a higher debt to GDP ratio could put upward pressure on bond interest rates.

        I’m baffled how you just don’t get this.

        • RJ

          “Now I don’t know about you, but if I owe 10GBP to myself I’m not actually in debt”

          But the BoE has a debt to the bank or receipt of the money. So yes the Govt owes money to isself in effect but the BoE using this debt asset to offset the debt liability

          Its like owing money to your wife (partner) who owes money to the builder who did some work for you recently. You could say you are debt free but you debt is essential to cover the debt owed to the builder.

          The BoE is nothing without the Govts backing. Only the Govt can tax and force entities to pay. It’s this power that gives value to reserves. Without the taxing power of the Govt the BoE reserves would be worthless

          • Crash

            Now take your example and explain where seignorage fits into all of this.

          • Exactly.
            Crash, I would not waste your time.
            RJ knows (or thinks he knows) about Double Entry Bookkeeping and lovely, associated terms like Journal Entries and Bank Reserves.
            He dismisses everyone on these pages as not knowing what they are talking about (except amazingly Adair Turner) and asserts and asserts with no explanation, evidence or supporting links.
            And if anyone answers him/her, there is an abject refusal to read and engage.
            Creepy troll.

          • Crash

            Yes, seems like it. Everytime I would press him on issues he doesn’t understand (aggregate demand, seignorage) he shuts up. What he obviously does not get is that in a world where all money is debt, the only way to get out of a debt-induced slump and trying to increase aggregate demand is to create more debt. Eventually, however, nobody is able to carry the weight of the debt burden, neither the private nor the government sector, and the system collapses.

            In his world view the central bank does not have any power to create money without being backed by an additional corresponding government debt (which also increases the central bank’s debt to the private banks). If you think about that for a second that is actually the same situation you have in a 100% credit economy where the government acts like a household and banks create a liability and matching deposit through lending to the government. The only way to reduce total debt levels being bankruptcy or voluntary debt relief on behalf of the creditors. The central bank is effectively useless.

            RJ does not understand seignorage, as this is where the debt reduction in a sovereign money system effectively comes from.

            And by the way, there are no accounting rules determining that assets have to have a corresponding debt, it’s always been assets = liabilities + equity. A sovereign money system changes the nature of money from money as debt to money as equity. This is the answer to the double entry bookkeeping conundrum he is stuck in, where every financial asset necessarily needs a corresponding debt.

          • RJ

            So that’s it. Hide the debt liability in Equity. It’s a possibility that has been done before via revenue (credit revenue / RE rather than debt). But accounting rules prohibit this now. As companies try to do this to hide loses. Or better still just not record them.

            So now a rule of accounting is that total world financial assets must = total world financial liabilities. If PM want to overturn this rule good luck to them. Its a sound, logical rule to stop companies or Govt’s etc fraudulently overstating their financial position.

          • Crash

            Get a grip on macroeconomics.

            Positive Money is trying to redefine money away from a debt based system towards an equity based system (not unlike shares whose value corresponds to the overall productive capactiy of a whole economy) so that the emergent instabilities that arise from having an asset/debt duality do not cause a breakdown of the system which inevitably happens in a debt based system that cannot clear bad debts without reducing aggregate demand. Your proposed solutions that rely on government deficit spending while not addressing the issue of the absolute level of debt to GDP just shift the debt burden away from the private sector towards the public sector, keeping the whole system on its path to crisis. Running deficits that increase the debt level is NOT OMT, in fact it’s the opposite (take a look at Adair Turner’s IMF conference talk from a few weeks ago and you will see a comparison). Unless you wrap your head around the distinction of money and debt you’re just an incompetent discussion partner.

          • RJ

            “Positive Money is trying to redefine money away from a debt based system”

            But according to your post above only by hiding debt in SHF’s. And this is what it comes down to. Debt free money is impossible by the nature of what it is. A FINANCIAL ASSET. But some people are so tied to the “story” (even if nonsense) that they will not the truth in.

          • RJ

            Your seignorage comment is based on a misunderstanding of what it is. And misinformation about how somehow a token for bank credit is different or magical superior to the real thing.

          • RJ
            Again, you make daft, dismissals of someone else’s contribution.
            Crash did not state anything about seignorage to, so how can you say that he misunderstands it?
            In fact, Crash made a straightforward request for you to explain how what you say fits into what you assert about Journal Entries, Bank Reserves etc.
            It’s a valid question – so, come on, how is seignorage designated in your precious world of double entry bookkeeping?
            And in the same response please go onto explain why Sovereign Money, when it is created, cannot have the same types of entry.

          • RJ

            I have explained this all before. At one stage in the past some Govts charged (by a journal entry) the cost difference between cost of production and value to revenue (credit revenue) rather than credit debt. The problem with this was it didn’t recognize the Govt debt obligation. Where a Govt would exchange these otherwise worthless notes / coins for a valuable Govt asset (tax owing). The fact that Govts were willing to stand by these notes and coins in this way is the ONLY reason why notes and coins have value. This still applies today. Likewise with reserves / sovereign money.

            So now these notes and coins are treated as debt except for a provision for lost or destroyed notes and coins. This provision is estimated in various ways.

          • Crash

            “Debt free money is impossible by the nature of what it is. A FINANCIAL ASSET.”

            This is where your dogmatic thinking limits you in understanding the soundness of the PM proposals. There is no inherent reason why money has to be structured as a debt obligation other than your definition of a financial asset needing to have a debt counterpart. A stock is equity in a company. Money is equity in an economy.

            You are misunderstanding the nature of what money is as your only working conceptual frame is that money can only be a debt obligation and that fiat money cannot be considered in the same vein as physical commodity money. For the longest time commodity money like gold and silver was the norm, which is in itself debt free. You could also use pebbles or sticks, or paper. It doesn’t really matter, as long as people value and demand it. What gives a currency its value is the demand for it (you rightly say that a government’s demanding you to pay your taxes in its own currency will always create some form of demand for it). Trust in the monetary authorities not to use excessive money creation as well as the overall productive capacity of the economy also play a role in determining a currency’s value.

            As long as people are willing to work for this piece of paper (or this digital number in a bank account) it will have value and that is what it is backed by. Look at the stock market, it works on the same principle. A stock’s value is based on the market’s expectation of the future performance of the company.

            In a sovereign money system, when the government spends newly created money into the economy, it also doesn’t do it for nohing, the value of that new money is equal to the work the state employed people which were initially compensated with that money, put in to build new roads.

            Sovereign money is not backed by a debt to fulfill productive work in
            the future (which has to carry interest to compensate for the risk of
            that future work not being carried out), but it is backed by work
            already carried out, so there is no risk of non-fulfillment and since
            there is no risk there is no need for interest. And since nobody else except the state is allowed to issue money, the state profits from the seignorage. There are tons of papers online on how this all works from a balance sheet perspective, so it is on you to come up with proof why having debt free money cannot work from an accounting perspective (and saying “financial assets are by definition backed by debt” is just circular logic)!

            Saying financial assets have to be debt based is a ridiculous assumption anyway. Suppose I have 10 stocks in Apple (so obviously a financial asset) and you dig up an ounce of gold from the ground. We exchange these two assets. What is the corresponding debt to my Apple stock and who is it owed to by whom?

          • RJ

            “For the longest time commodity money like gold and silver”

            Please name one country when gold was ever money. How about the UK. No. NZ. No. US. No. Give me one and the period if you can.

            Countries were on the gold standard at various times but this was a means to restrict trade or bank lending. Bank credit was still money at these times.

            And some have claimed tally sticks are an example of debt free money. This is just more misinformation. These sticks did not have value because they looked nice. The only had value as they could be used to exchange for tax owing. They were in effect no different to BoE reserves. And only had value because the Govt stood behind them. The ruler or Govt issued them to pay for goods and services (like reserves). And took them back to cancel out tax paid (like reserves).

          • RJ

            “Saying financial assets have to be debt based is a ridiculous assumption anyway” —> Its not an assumption. Its a fact

            “We exchange these two assets” This is a barter exchange. Where a physical asset is exchanged for a financial one that is not money.

            Re stock. The legal owner of the net assets (the company) has a debt obligation to the part owners (holders of shares). This is coded as SHF’s rather than debt as it does not have to be paid back. Govt bonds very clearly have to be paid back. But what about reserves without a bond issue. My view is this is like an on demand account at the bank as opposed to a term deposit (bonds). So it a short term debt as opposed to a longer term one. But still debt.

            If the Govt paid someone and issued shares in the Govt that in the case of total collapse would have a share in the Govt’s assets less liabilities owned. But this would create a few issues so is unlikely to happen.

          • Crash

            Let me try if I understand you correctly:

            When a government pays a worker with newly created sovereign money it is akin to the government issuing a voucher saying “at some point in the future we will accept this voucher as he tax payment you will owe us”. Since the government didn’t have to work for this money when it created it, it’s profiting off the government worker for free, until the government worker uses that intrinsically worthless piece of paper to pay taxes which the government had to work for.

            Both parties owe something to each other the government worker owes his labor, the government owes the government services provided to the worker.
            So in this sense I think I understand where you’re coming from.

            Positive money goes a bit deeper and wants to change this, and here’s the philosophical argument for it:

            A credit economy models this exchange as two simultaenous liabilities as the work is yet to be fulfilled and the risk of non-fulfillment is compensated with interest (Credit is extended on the basis of trust and hope).

            A barter economy models this exchange as two simultaneous assets (the work has already been done). There is no debt (1 cow for 4 sheep). In the long run, in such a system, money is just a number to cassifly all the existing positive wealth out there, not the possible future wealth which may or may not even come to fruition.
            New money only enters into the economy via actual productive value generation that is useful to all of society (the government worker building roads).

            Why wouldn’t we be able to create a money system which is based on existing value and not expected value which crashes everytime expectations face reality when it becomes clear once again that unproductive lending in a debt based system will forever be the source of financial crises?

  • Marco Saba

    Antitrust: Commission fines banks € 10 trillions in seigniorage settlement http://leconomistamascherato.blogspot.it/2016/01/antitrust-commission-fines-banks-10.html

    • Marco,
      I read your link.
      You really are a fundamentalist and I admire you for that.

      My friend, the very best of luck getting the Commission to do anything at all edgy towards the banks.

  • annoymous

    I think positive money organisation is better than a bad money organisation

    • Thank you.
      Duly noted.
      We look forward to your next insight.

  • If Adair Turner relied upon only two slides, why on earth are they not reproduced for us properly to follow him.

  • Do ye’know, several important insights came to me from this excellent discussion and the following question answering.

    I had been wondering for some time what level of SMC or OMF would be sustainable – the way the Jeremy Corbyn.John McDonnell were talking about their People QE was that could finance spending on extra infrastructure and fund and fund some sort of Investment Bank.
    I never tried to clear up whether or not the Investment Bank was the source of the infrastructure spending or whether it was its own entity to lend into the public or private economy.
    It became very soon clear that they believed there really was a magic money tree to behind PQE to the tune of many tens of billions each year.

    I’m afraid I dismissed the PQE idea as soon as it became obvious that they would take control of the amount of Sovereign Money created and the riches they were anticipating.

    So, it was great that it was pointed out by Adair Turner that Friedman thought a permanent 0-5% GDP may be about right (about £8 billion in the UK) and the others mentioned that approximately that sort of figure.

    I may have missed, it but my reading of the PM website and the Ben and Andrew’s book did not seem to put a figure on it.

    I fully understand the discussion that the SMC need may not be constant and depended on the slack in the economy but nevertheless it was obvious that SMC could never make real inroads into tax and could only be a ‘pump-prime’ (expanded of course by the Multiplier Effect).

  • Among many important points made by Adair Turner he said that Sovereign Money Creation – SMC – or his Overt Money Financing – OMF – would not really solve the desperate problem of income and wealth inequality.

    He hung his hat on Progressive Taxation as the way of redistribution.

    One thing is certain – the complications of our tax system are ridiculous and seem designed to serve the lifestyles of expensive accountants and tax lawyers as well as huge multinationals and plutocrats.

  • As well as a lack of the two slides given to the audience in the talk and not with us, I wonder if there are any with some time to transcribe of at least summarise the talk…?

    I say this as a measure of how much I admired the discussion and a measure of how grateful I am to Fran and PM for arranging it.

  • angel love

No Announcement posts

back to top