It’s Our Money! Conference
Saturday 29th October 2011 in London
Rarely does one get the opportunity to attend a Conference where you can leave with a clear idea about the analysis and the solution proposed. Too often, such Conferences leave you up in the air, puzzling about what you have just heard. But those of us who were lucky enough to get tickets to the sold-out, packed-out Positive Money Conference on Saturday were left in no doubt about the intention of the organizers.
Positive Money’s analysis of much of our economic woes was refreshing, clear and to the point, and its solution – its 3-point programme – was a masterpiece of clarity.
Doors opened at 9.30am for a 10am start and the first thing that struck you when you came into the Anatomy Building of University College London (Gower Street), was that at 9.45am the Lecture Theatre was almost full up already! Attendees were met by a group of friendly, smart, young people who checked everyone in, made them feel welcome and helped them get seated.
There was a professional feel straight away – and it was clear that it was well organised. The DVD “all about the money” was for sale, as well as the new book “Where does Money come From?” and copies of the proposed “Bank of England (Creation of Currency) Bill”.
By the start of the event, every seat was taken, with at least 200 plus people. It was pleasing to see the wide diversity of age groups present, with a really strong young presence, especially from the stage. It was clear from the get-go, that this was going to a serious, useful, and important event. Indeed, it was going to be a landmark event in the history of this idea in Britain.
Seasoned Money Reformers, people who “have been in Money Reform before Money Reform was cool”, commented among themselves that they had never seen anything like it. There was a feeling, as someone said, that “we are on the cusp here”, and just ready to take off. Times they are a changin’.
So what was the content of the day?
It was aimed to start at 10am with Ben Dyson introducing the Positive Money analysis, but Steve Baker MP, the Conservative MP for Wycombe, had to be at another engagement and so he was first up.
He agreed with Mervyn King that this was “the worst possible system”, which “threatened prosperity, damaged the environment and threatened equality.” He said that it was obvious for a long time that the finance system was set-up to do that. It was an unsustainable system where “jobs and growth have come from credit expansion.”
It was amazing to hear a politician state his clear belief that, “the first thing wrong is that the banking credit system can create money out of thin air.” He explained that such bank created “credit” was different from the sort of credit that, say, a tailor might extend to a customer. For example, if a tailor made you a coat which you could wear just now, but pay off over a period of months, then that was a form of credit, but it was backed by “prior production”. The banks’ “thin air credit creation”, he said, is not backed by such prior production.
He stated clearly, “I think fractional reserve banking is wrong. It is a breach of sound property rights and contract.”
Interestingly, he pointed out that he tries to seek consensus when debating in the Commons, standing at the end of the benches speaking to both sides, rather than from directly across. “We’re never going to move forward just making political points”, he said.
He emphasised something which was a common theme among many attendees through the course of the day, “What is great is that Positive Money picked a practical proposal, an idea which is capable of appealing to left and right. An idea which transcends partisanship. It cuts through that Tower of Babel.”
He reminded us that “This battle which Ben and others are fighting has very much been won before, in 1844” which was the year of the Bank Charter Act which prohibited banks printing their own bank notes.
Ben Dyson was next up saying he had “a huge amount of information in the next hour”.
He started from the beginning pointing out that money is not taught at school. He got to asking himself, “where is all this money coming from?” One day, in the library of the School of Oriental and African Studies, the spine of a book caught his eye. It was “The Grip of Death” by Mike Rowbotham. Thinking it must be a crime thriller that had been misfiled, “the librarian in me”, made him reach up to take it off the shelf. He then realised the subtitle, “A study of modern money, debt slavery and destructive economics”.
He was hooked, and the rest is history.
He said there were 3 Key Questions that needed answers: Who creates money? How much money do they create? What do they do with the money they create?
1. Who creates it?
He said, “We have a fully privatised money system” but few people are aware of that fact (except the 200 plus who were crammed into the theatre!) He stated that even people at the Treasury don’t necessarily understand it. There is no conspiracy, it is just they don’t understand it.
2. How much do they create?
Ben explained that cash in the UK economy is £57 billion, whereas there is £2,200 billion in digital money. Another question, in this regard, is “who decides how much to create?” Every bank loan creates new money – most people in the bank don’t understand that. He explained how the sales culture in the modern banking industry incentivises bank staff to lend.
He showed an interview he had done with Paul Moore, the HBOS Whistleblower, who emphasised this unfortunate fact.
In short, bank staff are making loans without realising that every loan creates new money – and they have massive incentives to do this, which overrules the prudence of bank lending. This sales culture pushes the money supply. The automation of the modern lending process facilitates this culture.
As Moore suggested, the modern bank is a form of supermarket retailing operation.
Ben asked him whether the guys at the top understand that bank lending creates new money and the impact that has on the economy. Moore responded by saying that he thought the top people must understand that fact, but he’d never heard anyone speak about it at all, or in relation to any kind of strategy or oversight activity that was taking place.
As for whether such people might consider the impact on the wider economy, he had never heard such a discussion in any bank that he had been in ever. What they will do is consider whether the economy affects the bank, not the other way around, he said.
3. What do they do with the money they create?
Ben argued that only the 8% will go to real growth in the economy. He suggested that there is evidence that much of the activity of the 92% goes to such things as commodity speculation which can push up the price of food, as well as put developing world farmers out of business.
What about loans for mergers and acquisitions, where businesses buy up each other? Is this productive activity? He cited evidence that 70% of mergers make the business worse. “A lot of the activity in the city is parasitic,” he stated.
Much of this 92% of created money could be restricted, he argued, without it actually harming the real economy, and indeed, likely benefiting it.
Indeed banks have a bias against business, to the point where it could be said they are systematically biased against the productive part of the economy, which is in direct contradiction to the theory of capitalism!
He then spent some time on the consequences of this privately-created money system:
The first is that our entire money supply is effectively on loan from the banks. “We are renting our currency from the banking sector.” This means that if banks don’t lend, there is no money. If we all pay down the debt, then there will be less money in the economy.
The present system perpetuates financial inequality at several levels. There is a redistribution of wealth from the periphery of the UK to London and the City. There is a redistribution from the real economy to the financial sector, and there is a redistribution from poor to rich.
There is also a diversion of our taxes from schools and hospitals to the banking sector.
In 2009 the government spent £2.1trillion, while gross bank lending was £2.9trillion. That is to say, the 5 big banks (RBS, Lloyds, Santander, Barclays, HSBC) who between themselves have an 85% market share, and 78 board members, have more control over the quantity of money that goes into society, than even the government. There is a democratic issue here. Arguably these 78 people have more control than our 650 MPs!
Next up, Josh Ryan Collins one of the co-authors of “Where does Money come From?” along with Tony Greenham, Prof Richard Werner and Positive Money’s Andrew Jackson, spoke enthusiastically and clearly on “Why there is so much ignorance about how the monetary system works.” Josh is clearly a master of his subject.
He said that he agreed with Steve Baker that there is not a conspiracy of silence on the matter of money creation, “It is just lack of knowledge.”
Josh said that “Positive Money gave us a great deal of help” with this project. He spoke about how Professor Richard Werner coined the term quantitative easing – but has not been happy with the manner in which it was implemented.
He set about demolishing some of the common myths, starting with the notion that banks are intermediaries, simply on-lending money that already exists. As he pointed out, banks are creators of brand new purchasing power. Every bank deposit is money. You can use it to pay your taxes.
Banks create this money “on the basis of their confidence”, or in some cases, “not on their confidence” that you will pay it back – which was what securitisation was all about.
He addressed the concept of the “money multiplier” and said that this was “no longer the case.” There is no compulsory liquidity reserve ratio. He said there was a better way of looking at it – there are reserves which are required for interbank payments, and banks lend basically on the basis of confidence. “The truth is they make loans first and look for reserves later.”
A third myth is that the Bank of England can directly affect credit creation through changing interest rates. He said that the truth is that if the High Street bank doesn’t have confidence, then it won’t lend, regardless of the interest rate.
A fourth myth is that credit allocation is demand driven. The truth was that credit allocation is rationed by the banks. They are incentivised to lend to short-term, quick-profit projects and into property. Indeed, he stated that the trend of modern bank lending is increasingly socially useless. The broad pattern is towards speculative and consumptive lending.
Another myth was that if we start controlling credit then we will somehow be turning into a communist state. However, only 30 years ago there were various government imposed controls over credit.
He concluded by stating that the present monetary system is systemically dysfunctional. The global debt crisis will not be solved by traditional Keynesian stimulus. This can only be done through the Positive Money reform that we are hearing about today.
Lunchtime: Thanks to a generous supporter, the Conference was able to have a sandwich lunch in the same building. This was a very good idea because it kept everyone together, increased networking, and helped to keep the event running to time, as well as making things much easier and pleasant for the attendees.
He argued that we are at a situation where effectively a whole generation is priced out of the market altogether. Over time a growing number of people never get to be home owners at all. The private rental sector has consequently seen exponential growth over the last 10 years. There are one million households with children, which are privately renting. Many people are paying well over half their disposable income on rent. 50% are not first time buyers, they inherit.
Rising house prices are not a good thing, he said, because they mean higher mounting debts for all, an affordability crisis, a redistribution of wealth upwards, higher inequality – between tenures, between rich and poor, between regions, and generations – a culture of unearned wealth where we earn merely by “sitting on our assets”, and a general misallocation of capital
Prior to 1975 there were no house price booms and busts. Prices went up in line with incomes.
After this, vast amounts of mortgage credit started flowing into the housing market. Every single one of these booms and busts has been driven by fundamental political decisions, such as the demutualisation of building societies, and the abolition of competition and credit controls.
He was asked what organisations like Positive Money can do to educate its supporters and partners to make people realise that banks are the problem behind the housing crisis. He said that the aim has to involve helping people to overcome a focus on the short-term. Rising prices may help some people in the short term, but they don’t help society in the long term.
It was pointed out from the floor that people in Britain invest in property, unlike say, the Germans who invest much more in long-term government bonds, merely because in Britain, we don’t believe in any other kind of investments anymore! We don’t have an economy which can give us faith in making long term investments.
97% of money is created as debt by private profit making banks and as a consequence they wield immense power. They are profiting from the creation of a public good, yet under no obligation to consider the long time view. UK banks were responsible for 18% of tar sand extraction, she said.
For many environmentalists, growth is incompatible with sustainability. In that regard, a debt-based economy encourages the growth cycle.
Moreover, labour saving technologies lead to unemployment. Theoretically, studies have indicated that we could decide to enjoy the benefits of productivity and simply work fewer hours in the week. However, it is very hard to imagine people working less if they have debts to pay. Similarly, it is very difficult to imagine businesses going along with new working regulations if they have high interest and debts to pay off. Therefore, reducing levels of debt is necessary if we are to enjoy the benefits of technology.
She concluded that infinite growth on a finite planet is impossible and that debt-based money is a driver of that growth.
1. What is the state of affairs in the national economy?
Manufacturing is being hollowed out. There is soaring corporate pay which is not justified because there is no concurrent improvement in productivity or innovation. Research and development is lower than in 1981, we have a financial crash, which “started in the City of London just as much as it started in Wall Street”, and it may get worse.
2. What are the causes and how far are the banks responsible?
The banks are a primary cause – through the proliferation of financial derivatives and securitisation. Through all these techniques they have evaded public control and used it to promote their own interest, not the national interest. They have been generators of unsustainable asset bubbles, and have seized control of the money supply. They have used their generation of the money supply in order to promote a property boom, and foreign speculation, whilst allocating a mere 8% to productive investment. This means that 11/12ths does not go into productive investment.
He stated “I’m not anti-bank, but they have enormous power, and need to be brought to heel.”
3. How did the politicians let this happen?
They didn’t allow it, they facilitated it. Successive governments have removed all restrictions on the operation of the market.
4. How did the banks respond to the changes made?
Banks are now in a very privileged position. They can create money, decide who gets it, how it is allocated and for what purpose. And their risks are underwritten by the state. They have engaged in greater risk and recklessness because they know they are going to be completely safe.
5. So why have the politicians done so little about it?
The dominant ideology of our times, he stated, is deregulation of finance, market fundamentalism, privatisation, inequality and control of labour.
6. What can be done?
Control of the money supply should be brought back into the public domain. The only way to control credit is by direct credit controls. He explained that the central bank could determine the required GDP growth. You would estimate the amount of credit creation necessary and then allocate this across industrial sectors. Restrictions on direct public creation of money imposed by the Maastricht treaty (now Article 123 of the Lisbon Treaty) should be re-considered. He stated that some Tories are keen to get back power from the EU on certain things, and so they should also be keen to get back powers on this particular matter. Furthermore, he said, we need the full separation of retail and investment banking, and we need specialist banks.
Importantly, he said, “The key issue, the central issue, the overwhelming issue which this country must face up to, is the restoration of democratic accountability via control over the money supply.”
He concluded with a very positive and inspiring rallying cry: “This is probably the single most important issue at the next election…the state of events does produce the consequences that are needed.”
“It is only when things get very bad that change becomes possible, and it is our responsibility to see that opportunity and be ready with the solutions.”
He paid tribute to Ben Dyson, because “this is something that everyone is ignoring.”
There followed a break, and although it was mid-afternoon, there was still a lot of energy and interest in the room. Throughout the whole day, the event never flagged at all.
After the break, Bruce Davies, a co-founder of Zopa, a peer-to-peer lending organisation, spoke about how it managed to set up. He also explained his new venture “abundance” which is a “community investment platform” which he terms “democratic finance”.
The first point he emphasised is that the Positive Money reform separates the decision about “How much will be created”, from “what for”. The politicians will not create the money. The MPC of the Bank of England will create the money, under the strict terms laid out in the Bank of England (Creation of Currency) Bill. The MPC will create the appropriate amount of money, while the politicians will spend it. The relationship between the MPC and the government will be like the relationship between a mechanic and a customer. The mechanic will tell you how much oil to put in the engine, but he won’t tell you where to drive.
To simplify the question of “how much to create?” the basic principle will be to create money when inflation is low and steady, and stop when inflation rises.
Parliament will then have a range of options on what to do with that money. Spend more on public service, cut taxes, lower national debt, or just give it to people. A proposal involving cutting taxes could involve cancelling VAT and raising the income tax threshold.
“We don’t need more lending because the crisis was caused by debt. We need more money, to pay off the debt”, he stated.
A question he was always asked was, “Has this been tested anywhere?” Yes, he said, it has already been tried in a small island nation almost 170 years ago…it was a land…he said, where bankers were creating their own money in the form of banknotes and consequently devaluing the currency. Thankfully, the government stepped in and prohibited them through legislation.
That country was…Britain…and it was the Conservative government of Sir Robert Peel, which passed the 1844 Bank Charter Act!
Of course, there was no cognisance back then that cheque books and plastic would allow the process to continue, and so this Positive Money proposal was necessary to complete that reform properly.
He described “seigniorage” – the money the Bank of England makes by selling banknotes to the private sector at face value – as “another income for the Treasury and therefore represents taxes which we don’t have to pay.”
He addressed some frequently asked questions: Would there be a contraction of credit?
Firstly, he would point out that coming off heroin is painful, but that is not an argument for coming off it. “We have to come off our dependence on credit”, he stated. Furthermore, we can lose a lot of the 92% of credit which goes on unproductive investment without harming the economy, and indeed that would benefit it.
He argued, convincingly, that banks do not contribute as much as they are made out to contribute to the economy. Indeed, the statistics show that they receive more in subsidies than they pay in taxes! In short, they are not as important to the economy as they make out.
The notion that the banks would leave is an empty threat. It makes as much sense as saying that “Tesco is going to leave the country and relocate to the Czech Republic if you put a tax on plastic bags.”
He concluded by describing the Bank of England (Creation of Currency) Bill, and said it was “quite an achievement”, for which Positive Money received a very hearty round of applause.
He spoke about a card system in Hong Kong, based on “Near Field Technology”, which is the technology that the London Oyster Card is based upon. The company running this card in Hong Kong was granted a Banking License because so many people were using it as a payment method. There was a mobile phone company in Kenya which almost became, in effect, the biggest bank in Kenya because people were using their mobile phone credits as a payment method. There were also the up-and-coming Facebook credits concept which was built on PayPal, which is a front end for the banking system. Twitpay is another new face on the scene.
However, none of these innovations satisfied his desire to participate in a bank which followed the Positive Money proposals. He feared that, “None of them know about the unsustainable nature of the business they are about to embark upon.”
So, he set himself the task of considering how he could spread the word of banking reform by trying to set up a bank founded on what a reformed banking system could actually look like. That would be a reformist project in itself, allowing him to describe to the powers-that-be, how things should ideally work.
This bank would also incorporate elements of social media, and also follow a “crowd-funding model”.
Consequently, he has formed BanktotheFuture.com which has 4 main principles.
1. The money is yours – it will not belong to the bank, as it does, legally, under UK law at present [as per Foley v Hill, (1848), 2 HL Cas. 28; 9 ER 1002; and (1843-1860) All ER Rep. 16.]
2. You will always know what your money is used for, because you will allocate it, or you will approve its allocation.
3 BanktotheFuture.com will only support productive enterprise. “If you want to borrow money to go on a holiday this is not for you.”
4. Importantly, it will not use its banking license to create money!
He is aiming to launch in early 2012.
There would be no more bailouts, there would be no more subsidies. We would reclaim democratic powers from the banks. “This is the only reform you can do which will make a significant difference to the level of debt,” he stated.
Questions continued until 6.15pm when the Conference was brought to an end, with Ben saying, modestly, that they need donations, and especially Direct Debit donations. If you are unable to do anything physically for the organisation, then here is a way that you might be able to assist. The impression left is that any money given to this group of young, dynamic, highly competent, and serious people will be money well invested, which will be returned a hundred-fold to us all in the future, via a more stable and just economy.
Around a quarter of the 200 plus crowd repaired to the Marlborough Arms, just round the corner, where Positive Money had booked a suitable room, for conversation and networking which continued well into the evening. Thank you to the Positive Money team, and all their helpers, for arranging such a great event.
Report written by a Positive Money supporter.