What's the core idea behind Positive Money? Why is it a problem that commercial banks create money? What would a positive money system look like?
Summary Ann Pettifor’s new book, The Production of Money, is an excellent contribution to the growing body of thought exposing mainstream, neoclassical economics’ poor understanding of money, banking, and finance, and how its thinking has led to a financial system that we serve, rather than one that serves us.
This is the second part of our article dealing with the argument that bank lending must lead to escalating debt because banks don't create the money needed to pay the interest on the debt. Part 1 explained how the wrong conclusions have been drawn from the oft-repeated ‘banker on a desert island’ analogy. We showed that it is mathematically (and therefore logically) possible for both the principal and interest of a loan to be repaid.
There is a lot of confusion about the role interest plays in the current monetary system. It is often suggested that the fundamental problem is not the banking sector’s ability to create money, but the idea that “banks create the money to make the loans, but don’t create the money to pay the interest on those loans”.