Economists have lost sight of the value of money – with catastrophic results, reads Guardian on 5th June in the Review of the book Money: The Unauthorised Biography
Crucially, it is not just governments that create money – others can, too. The recent internet-based Bitcoin is one example; community currencies such as the Brixton and Bristol pounds are others.
But more significant by far is the money created by private banks. Indeed, the recent financial crisis was largely caused by banks issuing IOUs and effectively “creating private money outside the control of government” in a “vast, unregulated ‘shadow’ banking system”. On the eve of the crash, the shadow banks’ balance sheet stood at around $25tn in the US alone – more than twice the size of that of the traditional banks.
All of this was largely ignored by mainstream neoclassical economists. For them, these enormous quantities of shadow money simply did not compute. For them, the credit and asset bubbles driven by bank-created money had no major effect on the economy. Here, according to Martin, lies the answer to the Queen’s famous charge against the economics profession in 2008: why did none of them see the crisis coming?
The author of the book ‘Money: The Unauthorised Biography’ – Felix Martin – was on Newstalk radio on 6th June speaking about it and he spoke at length about the private creation of money. It’s great to have some conversation on money creation on a prominent station.
Listen in from 6:23 min