[first]Making money work for society[/first]
Positive Money campaigns for a fair, democratic and sustainable money system.
Positive Money has identified the following problems with the current money system:
- Asset price bubbles: The almost limitless creation of money by banks for unproductive purposes can lead to asset price bubbles. Asset price bubbles have three major effects on the economy:
- They increase the levels of private debt relative to incomes in the economy: Asset price bubbles in necessities, such as housing, either push the price of these assets out of the reach of the majority, or force individuals to take on excessive amounts of debt in order to purchase the assets. An increase in debt, without an increasing income, lowers individuals’ disposable income.
- They increase inequality: Inflation in asset prices leads to an upwards transfer of wealth as assets tend to be highly unequally distributed. Further, the fact that most money is created as debt creates an upwards transfer of wealth due to interest payments on the debt. Taken together, an increase in borrowing for asset purchases means an increase in interest payments – leading to large dividend payments for bank shareholders and larger wages for bank staff.
- They increase the likelihood of recessions and financial crises: Money creation is pro-cyclical – too much is created in a boom, and too little in a recession, causing the boom-bust cycle. However, money creation for unproductive purposes can also lead to asset price bubbles, which themselves can lead to financial crises.
- It leads to bank runs, bailouts, and subsidies: Financial crises inevitably end in bank runs and/or bailouts, increasing the cost of a financial crisis to the taxpayer. In order to prevent bank runs, governments provide deposit insurance to their citizens. This creates a subsidy to the banking sector, and can create moral hazard amongst bankers. It also creates moral hazard amongst depositors, who no longer need to monitor bank’s activities to ensure that the bank is acting in their best interests. Aware of this, banks are able to pursue higher risk strategies, at the expense of the taxpayer.
- It’s bad value for UK citizens: The current system requires taxes to be higher and/or government spending on services to be lower than it otherwise could be. Bank bailouts divert funds that could be used elsewhere to propping up the banking system. Likewise, by giving up the power to create money to the banks, the government gives up a source of revenue and therefore must either lower spending, increase borrowing or raise taxes.
- It is undemocratic: Banks decide where in the economy they lend to, depositors have no say over how the money that they lend to their bank is used. Furthermore, there was never any democratic decision to give banks the power to create money. Banks have no legal obligation to use this massive power in the interests of society as a whole, and we have no way of holding them accountable when they use it badly.
- It harms the environment: As depositors do not get to decide how their money is used, environmentalists could find themselves inadvertently funding activities that may be harming the environment. There is also evidence to suggest that the current monetary system is incompatible with a steady state economy.
Positive Money is supportive of ideas and policies which move towards our end goal. However, we do believe that our end goal can only be reached when the following three things have been achieved:
- Prevent the private creation of money or money substitutes.
- Transfer the power to create money from the banking sector to a democratic, transparent and accountable process working in the public interest.
- Ensure that new money can either be spent into the economy free of corresponding debt. Alternatively, if required, newly created money could be lent in, for on-lending into the productive sector.
Positive Money is not:
- Positive Money does not act on the behalf of any particular lobby or interest group.
- Positive Money is not a political organisation. We don’t campaign for either a bigger or a smaller role for government. We campaign for changes to the money system which would benefit the economy as a whole, and which is therefore compatible with the aims of all political parties.
- Positive Money is not against privately owned banks. Privately-owned banks have an important function in providing payment services, a secure place for our money, investment opportunities, and to make loans.
- Positive Money is not against bankers. Most people who work in banks do not understand the money system and its effects, and are simply trying to provide a service for customers and earn a living. Undoubtedly some bankers have abused their power, but this is not the root cause of our financial crisis; the root cause is our current money system.
- Positive Money is not against lending, or charging interest on loans where an investor is lending their money to somebody else.
- Positive Money does not believe that regulation alone can solve the problems with banking or the money system. Regulation has been shown to be ineffective, and easily reversed, but furthermore it does not alter the root causes of the problem. What is needed is legislative change.
- Positive Money is not a campaign for general financial reform, alternative economics or complementary currencies. While there are many other reforms that also need to take place, Positive Money has a specific and narrow purpose – to change the national money system in order to create a fairer and more stable economy.
- Positive Money does not support the use of illegal or violent means to bring about change. We campaign for the money system to be changed with minimal social and economic upheaval.