Jeremy Warner claims in his Telegraph article “Bankers have done a good job of creating money” from 2nd May 2014 that transferring the power to create new money from banks to the state would mean that “politicians can print money to their hearts’ content”:
In a system of 100 per cent reserve banking, the ability to create money is removed, and vested entirely with the central bank and the government. The iniquities of the credit cycle are abolished, governments become the only source of money creation, and the politicians can print money to their hearts’ content to wipe out public debt, pay for healthcare, fund infrastructure and all the other worthy public causes that private bankers are reluctant to finance.
But this is a serious misrepresentation of our proposals. Nobody is proposing to give politicians the keys to the printing press. As we write in Modernising Money, neither vote-seeking politicians nor profit-seeking bankers have the right incentives to manage the power to create money:
In short, neither profit-seeking bankers nor vote-seeking politicians can be trusted with the power to create money, as the incentives both groups face will lead them to abuse this power for personal, party, or company gain. Instead, we must ensure that the creators of the money supply do not personally benefit from creating it. This requires the separation of the decision on how much new money is to be created from how that newly created money is to be used.
We do this by giving these two decisions to completely separate bodies. We recommend that an independent body, the Money Creation Committee (MCC), should take decisions over how much new money should be created, while the elected government of the day should make the decision over how that money will be spent. Alternatively, the MCC may lend money to the banks to on-lend into the ‘real’ economy, in which case the decision over where the money is lent will be made, within broad guidelines, by the banks.
I have emailed Jeremy Warner and thanked him for engaging in this crucial debate. But I’ve also suggested that the article should be updated for accuracy. This discussion is too important for journalists to muddy the waters with hyperbole and inaccuracies.