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The solution we are all looking for… – Modernising Money Book Review

How many times do you hear that the government is massively in debt, and that there are only two options – either (a) increase taxes, or (b) cut government spending?

This story, which is repeated endlessly by policitians, economists and journalists is a fiction. And Andrew Jackson and Ben Dyson’s excellent book explains why. The real problem is that governments have handed the power to create the nation’s money supply to the commercial banking system. And those banks are responsible for creating 97% of the money in the UK system. They create that money “out of thin air” when they make loans. And then they charge everyone – individuals, businesses and governments – interest on those loans.

My own calculations back up the claims made both in Modernising Money, and in the Positive Money groups’s previous book “Where does money come from?” (also highly recommended). Since 1995, the UK goverment has paid over £495 billion in interest charges on government debt. That’s a substantial proportion of the £1.1 trillion in public sector debt. And these payments have been going on for decades. Indeed for most of the 1960s and 1970s, the government was paying around 3.5% of GDP to the banks in the form of interest charges, reaching a peak of over 4.5% in 1981-2.

What Jackson and Dyson demonstrate is that those payments were totally unnecessary, because there is absolutely no reason why the nation’s money supply needs to be created as interest bearing debt by commercial banks.  The Bank of England could, and should, be creating the money supply. And it should be providing that money supply to power the economy free of interest charges.

The usual argument trotted out by the defenders of the Banks right to create the money supply is that if governments were to be given control of the money supply, they would be tempted to increase the money supply too fast, and the result would be hyperinflation – we would end up in Zimbabwe, or the Weimer Republic.

But Jackson and Dyson calmly demolish these arguments. In an appendix, they demonstrate that the Zimbabwe/Weimar Republic arguments are phoney. They also demonstrate that, left to the commercial banks, money creation is done in a way that follows only one objective – maximising bank profits. And that is why a vast amount of the newly created money has gone to fuel house price inflation – with the result that working families are now priced out of the housing market.

 

This is an extract from the Review of the book Modernising Money by Simon Thorpe.

Read the whole review here.

 

 

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  • Charles_Dilkes

    You can always expand the money supply in fractional reserve banking – it’s almost axiomatic in fiat monetary systems. The government can still engineer it so that CAR are higher and therefore reduce the money multiplier, but reducing credit at a time of lack of liquidity is a bit of a stupid idea.

    Why do banks charge interest? Well why do you think? They’re not charities they’re loan businesses, therefore you incur a charge when you borrow money. Interest is supposed to be a reflection of money’s scarcity – it’s supposed to indicate whether there’s enough surplus resources for an economy to invest in new modes of production. Only banks have the capacity to make that economic judgement; the BofE, as a non-profit Central Bank, fails to satisfy that role.

    The current economic and banking malaise has a variety of origins, not all of them derived from the banking sector. Government agency played a critical role in egregiously manipulating the economy through intervention and, specifically, the price of money.

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