Positive Money's Student Conference

After a long and demanding weekend of incredibly interesting presentations from our speakers I’m glad to say our first conference, Banking Shapes The World, was a huge success. We sold out 130 tickets well in advance, making it the largest monetary reform conference ever held.

The first day, with representatives from the Cobden Centre, Positive Money, & nef (the new economics foundation) (nef’s review of the conference can be found here) present, the speakers, along with other experts such as Professor Mary Mellor took the audience on a detailed journey through the monetary system. The mechanics of the UK banking system including the money creation process, and the workings of and level of of overall knowledge in the City were covered in the morning section.

The afternoon saw an excellent presentation from Steve Baker MP – introducing the Austrian School perspective on the issue, and explaining how and why the political sphere has failed to address it. Ben Dyson took the audience through the numerous harmful effects of the fractional reserve system on both the economy and society, before we moved on to two differing analyses of the problem and some suggestions for reform.

Toby Baxendale, coming from an Austrian School perspective, suggested his particular full reserve solution, with a focus on restoring property rights to the depositor in a bank account, converting demand deposits to cash, and money that is transferable to gold – as a protection from government debasement of the money supply by facilitating its expansion. Toby went on to explain that “swapping” demand deposits for real cash would not be inflationary, as it would be a swap, the only difference being that the cash would represent more than 50% of the money in circulation, as opposed to the 3% it currently does.

Professor Mary Mellor gave an insightful history of money and how it came into being, arguing that it is a social construct, as opposed to a naturally emergent phenomenon. In her contrasting approach, she argued that the money supply has been privatised. To summarise her view, when taken in a historical context, there are two flows, or circuits, of money.

The first is state issued money, entering the economy debt free and subject to taxation. Historically this money and its taxation was the driver of economic activity and money circulation. Mary stated that as the state issued money it would facilitate its circulation through demanding tax, which would then cause circulation through trade amongst the population in order for taxes to be payable.

Bank money is the second kind of money, and was initially created in the form of an IOU. Prior to bank money, after producing a good, a producer would have to wait until a trader had sold the goods before receiving payment, where the trader did not have enough to pay up front. The inefficiencies in this led to the offering of a factoring service by banks, whereby the producer would receive payment in full from a bank, and the trader would then write an IOU to the bank.

Mary went to explain that the problem arose when banks began to make loans in the state legal tender currency, and the emergence of our debt based monetary system occurred after we effectively privatised our state issued money supply. Privatising the legal tender in this way led to the situation whereby state issued debt free currency (cash) now only represents 3% of our money supply, as banks could create large quantities of debt money in legal tender form, and the state stopped issuing money debt free (although much of the cash we use is now created as debt also). Once the state gave the power to issue legal tender to the banking sector, it had to uphold the security of it by bailing out the banks when a crisis occured, as part of its responsibility to provide a working money system.

However as the state gradually lost its power to create money, it had to tax the bank issued money, which was beginning to replace the debt-free money. As bank money must be paid back with interest, the money supply began to expand, causing its own problems. The banking sector, as it can repossess a house and not a business, began to loan mainly to property, and before the crisis, was even lending 30% to the financial sector itself.

For Mary, and this is where she and Toby & Steve, along with other Austrians, differ.  Professor Mellor argues that the public sector is not parasitic to the banking sector, and that it is the other way round. The banking sector has a public responsibility as issuer of the public resource of the legal tender, which it shirks by avoiding taxes, lending to itself, investing heavily in non-productive asset inflation, and by paying its top financiers 19,000 times the average wage. Mary advocates reclaiming the money supply as a commons social resource, and issuing it debt free with democratically determined priorities, in order to create a sustainable and stable economy.

Despite two differing viewpoints of the same situation, the findings of both implying the removal of a debt-based monetary system.

The start of Day 2 of the conference featured a talk from Josh Ryan-Collins of the new economics foundation on local currencies and the need for a new paradigm in economic thinking. Josh covered the need for a monetary reform from a social perspective and argued that it would in all likelihood see the removal of fractional reserve banking if social interests were to be aligned with the design of the monetary system. Josh went into some depth talking about a contingency plan that communities could use in place of the current monetary system to safeguard against its problems, in using complementary currencies such as the Totnes Pound, and the Brixton Pound, of which he was a founding member.

After an interesting talk from Simon Dixon on how to put plans and mission into action, we broke for lunch in preparation for the Finance Lab session, working in groups on how to put our plans into action and what could be done at the local university level to raise awareness of these problems. Some images of which can be seen below.

All in all, the conference was a great success, and marked the beginning of a real movement to make this happen. We saw an interested audience, many of the students in a similar position to myself, having been taught the mainstream version of economics and finding it drastically lacking in providing an understanding of the actual workings of the economy. There were many interesting questions, ideas, and insights bounded around, with positive feedback from all the attendees.

Videos from all the presentations will be made available here in due course. If you came along, thankyou, and if not, be there next time!