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Author of The Debt Generation on Modernising Money

“Modernising Money” by Jackson and Dyson, who are founder members of Positive Money is an analysis and also a call to action.
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Modernising Money” by Jackson and Dyson, who are founder members of Positive Money is an analysis and also a call to action. It is well written, very clear and largely free of useless jargon. In short it is a book worth reading.

The heart of the book and the analysis it advocates is to make clear that when banks lend, they create the money they are lending out of thin air. Such a statement will always seem a preposterous thing to say, and so the authors work hard to show exactly how this can be and in fact IS, and to debunk the widely assumed ‘traditional’ story that banks only lend money they have previously taken in from depositors. They do not claim deposits have no role or importance, just not the one we perhaps assume.

Once you come to see how banks can possibly just create their lending ‘out of thin air’ rather than only lending out what has been previously deposited, then something else becomes glaringly obvious. Namely that if banks don’t recycle already existing money from depositor to borrower, then they actually create the money they lend out. When a bank agrees to lend, they create credit and that credit swells the money supply. Your mortgage can be securitized, that security can be sold – for money – it can be insured – for money – and used as collateral to create more credit, which further expands the supply of money. And once you have have got that, then the vast and almost unrecognized, let alone unregulated power of the banks over our economic  well-being and indeed our governments become obvious. And this is the political call to action of the book.

Banks decide how much money exists, central banks and governments do not. Governments and central banks do have some levers of power, but in our present system they are not nearly so potent and direct as the power of actual money creation. Governments can find themselves forced (and I do mean forced) to chase , support and ‘back-stop’ this private money creation. QE is just the latet example of central banks and governments being backed into supporting private money creation. Let us leave to one side the very valid question of whether governments are happily complicit in this ‘forcing’.

Should banks have the power to create money and thus control the supply of money and credit upon which the rest of us depend? Should they have the power to ‘force’ govenments to dance to their tune and backstop their decisions and desires? The authors think not and I agree. That they should decide who to lend it to? Fine. That they should have control over its actual creation and supply? May not be nearly so fine.


This is an extract from the Review of the book Modernising Money by David Malone, Author of The Debt Generation.

Read the whole review here




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