Money Creation Discussed in Parliament

An important meeting entitled ”IGNORING MONEY: WHY THE VICKER’S COMMISSION WILL NOT PREVENT THE NEXT CRISIS” was held in Committee Room 21, Houses of Parliament on the 8th November

This is a recollection of the event written by Harry White, a Positive Money supporter:

The speakers were:

• Ben Dyson – Positive Money,

• Josh Ryan-Collins – New Economics Foundation,

• Steve Baker – Conservative MP and

• Michael Meacher – Labour MP.

Ben Dyson gave a brief speech on the Positive Money Campaign Message which is that of educating the Public and MPs of the need for Money Creation Reform.

Referring to the Vicker’s recommendations Ben said that the report had major factual errors on the way in which banking system works as well as on their analysis of the reform proposal.

Also, it was dismissive of the proposition by Positive Money, New Economics Foundation, and Professor Richard Werner that the State retrieves from the Banks the privilege of creating 97% of our Money supply out of nothing and providing it at interest (Debt based Money) and decides its allocation primarily not to the real economy but in creating bubbles in unproductive assets such as property and existing equities involving destabilizing speculation. Instead, that Money be created debt free by the State for social benefit. Ben stated that this omission by the Commission would inevitably result in another financial crisis greater than the last.

“The present system is as far from a free market economy as it possibly can be.” – Ben Dyson

Josh Ryan-Collins explained that the joint recently written book “Where Does Money Come From” was intended to give the most up to date publication on the nature of modern day money and the role of financial institutions based on over 500 documents issued by the Treasury, Bank of England and the Banking fraternity and interviews with executives in these organisations; it did not suggest reforms but was intended to provide a common base of understanding of the nature of present day money for all involved parties whatever their stance – economists , politicians and the public.

Why there is so little understanding amongst policy makers, economists and members of ICB about how the system works?

“Orthodox economics taught in colleges and universities sees money as neutral, as of no significance. And this economics dominates the policy of treasury today.”

“If we want to democratize the system, we’ve got to start with banks.”

“This is much more important than whether you are “right” or “left”, it’s about democracy.” – Josh Ryan-Collins

Referring to the MP’s speeches, Steve Baker MP said that he supported the Cobden Centre view regarding money in that it should not be a creation of the State or the banks but dependent on the Market with a commodity based unit involving precious metals. Nevertheless, since the Cobden Centre objective involved, as a first stage, has an identical goal as that of Positive Money he was fully behind the Positive Money Campaign.

“Today’s system is based on privileges for few.” – Steve Baker

“If this is a capitalism, then I am not a capitalist.” – Steve Baker

“How quickly we’ll reach a consensus on the solution, I don’t know, but the first step has to be to “get money under constitutional control.” – Steve Baker

Again, as he had done at the recent Positive Money Conference, Michael Meacher MP proclaimed himself to be a vigorous supporter of our Campaign. He referred to the Vicker’s failure to recommend absolute separation of High Street Banks from Investment Banks in favour of a loose separation where major Banks could operate, in separate divisions, both High Street Banking and Investment Banking.  He was adamant that such Banks would find ways of breaching the Chinese wall to their financial advantage.

“Vicker’s commission completely failed to address the fundamental question.”

“This system ensures phenomenal privileges to the banks.” – Michael Meacher

Michael Meacher said he together with Steve Baker were optimistic that they would be able to interest enough cross Party MPs to begin debating the need for monetary reform issue outside the Main Westminster Chamber. This, he explained, was an often used parliamentary approach to raising MPs awareness of important issues. An All-Party Parliamentary Group on Economics, Money and Banking was set up already.

One other important MP was present – Mark Garnier, Conservative – who is a member of the Treasury Select Committee and he listened attentively and promised to inform his fellow committee members that this meeting had occurred, about the Positive Money Campaign and that Steve Baker and Michael Meacher were trying to organise cross party debates.

I will end by reporting my contribution – I got in first!! Using my finger representation of inevitable booms and busts that fluctuating upwards and downwards surges of Bank issued loans (debt based “MONEY”) bore no relationship to a system where the money supply mirrored GDP. In the latter case extremes of booms and busts would be unlikely and with zero or very low money supply induced inflation money would retain its purchasing power( i.e. be a store of value and not subject to the ravages of endemic inflation). I questioned why Economists with all their theories, high power mathematics and graphical representations could not see it in this way? This applied to, Financial Journalists with their mysterious jargon and also to MPs. I enquired whether there were sinister reasons? As one, the Panellists said that they did not suspect anything sinister but that it was purely a question of ignorance of the way Banks created most of our money supply.

I said any control systems engineer would regard the existing system of money creation by the banks as an inherently unstable process and would be fully aware that regulation will never stabilize such a system. An inherently unstable process or system must first be redesigned to be inherently stable and any added measurement and Control equipment (REGULATION) will simply refine the performance. This is inherent stability to the Real Economy that I personally believe the Positive Money reform proposals would provide.

One issue mentioned by one of the MPs that the Maastricht Treaty prohibited any EU country from Monetising its Debt. I was concerned that this might be a EU restriction on the Positive Money proposals. However, this prohibition in Article 123 does not prevent the Bank of England creating money and granting it to Parliament, as we Money Reformers propose in this Bill – probably because the EU has not yet contemplated such a radical solution.

 So, technically, there is nothing prohibiting this solution at the moment. Needless to say though, if it ever came to the wire, our proposal would create a massive stink in the corridors of power in Brussels.

Somebody designated Steve Baker and Michael Meacher as “politicians who transcend their parties”. It’s true and we certainly need more of “enlightened” politicians to win the battle of common sense.