Chris Noakes, a building contractor with a keen interest in political economy, writes in this week’s community education column.
The shelter charity Shelter recently reported that during the Covid pandemic, the ten richest people in the world increased their personal wealth by £ 400 billion. Guardian columnist Simon Jenkins, understandably outraged that the wealthiest are getting so much richer in a time of general deprivation, suggested the only justified policy response should be a wealth tax.
In the unlikely event that such a measure were to be applied internationally and not be thwarted by the use of tax havens, it would still offer only limited mitigation after the event. The fundamental problem is that huge concentrations of the world’s wealth and resources are increasingly controlled by a tiny minority of people.
It is quite easy to come to a general conclusion that capitalism as a system is responsible for this unwanted state of affairs, and that it pushes us to destroy the planetary ecology in the market. But if one wishes to move beyond mitigation (which is mostly the same thing) to a true structural solution, traditional ideas of political economy tend to end with a version of control. centralized state – and this seems, from historical evidence, too likely to end. like an oppressive experience, not even a well-suited arrangement for engaging with a new ecological necessity
The Positive Money organization and its local groups are taking a less traveled path, based on knowledge about the nature of monetary and financial systems and how these have fundamentally shaped the world we live in.
Money, for most people, is a huge practical and psychological factor in their life, so urgent for their daily sustenance that they are unlikely to spend time thinking about its nature. The typical implicit assumption is that, because it is usually the only way to obtain concrete necessities, money itself must be a corresponding substantial commodity. Almost no one thinks that it is even relevant to ask the question of how it is created, who creates it and what effects it has.
But when one comes across the premise that these issues could lead to something interesting, the picture that emerges is so far removed from the default set of assumptions that it elicits initial disbelief.
Regarding the who and the how – who has the prerogative to create money, and what is the method – the standard sensible answer would probably be that governments naturally have a monopoly on the legal creation of money. Isn’t that what the Royal Mint is for in Britain and why is it a crime to counterfeit money? Well, yes and no, but above all no.
Governments are in fact responsible for supplying some of the money in circulation. The point is that in almost all modern currencies only about 3% of the money is government-created banknotes and coins. In the UK, since the 2008 crash, up to 17% of total supply has been created through quantitative easing (QE) from the Bank of England, while the remaining 80% is entirely virtual. It does not represent any tangible stored resource, gold, silver, or anything else.
In the UK about 80% of all money is basically held by commercial banks and leased to everyone else, with interest charged for the privilege of using it. (In currencies where QE has been used less, the component created by the bank could reach 97%). In other words, far from being a solid and neutral tool, 80% of money exists only in the form of debt, and only 3% has some tangible form.
There is a constant and pervasive “trickle down” of money to the banks, and therefore to those who own and control them. The banking and financial sector around the world has effective control over all productive economic activity.
This may immediately seem implausible. However, the Bank of England has confirmed (in an article published in its first quarterly bulletin of 2014) that commercial bank lending is indeed the primary method of creating money.
Bank loans are the main substance of the money supply, and when a loan is finally repaid, that money disappears from the currency (although the interest paid on it remains in the form of bank profit), which means that for maintaining supply and maintaining banks indeed the same thing – new loans must constantly be made. This explains a lot and turns out to have vast ripple effects.
- For part two on the Positive Money Movement, check out the Community Education column in next week’s edition of the Exmouth Journal.