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Money and illusion

May 9th, 2011 · No Comments

Positive Money (April 29 2011)
Fifteen Things They Don’t Tell You About Money
Inspired by Ha Joon Chang’s 23 Things They Didn’t Tell You About
Capitalism (2010) (where you learn for example that the Nobel Prize for
Economics is not really a Nobel Prize: it is awarded by the Swedish
Central Bank).

1. Governments in full sovereign control of their currencies can create
sufficient money to ensure full employment and to finance all their
activities. There is no limit to money creation and to say that ‘there
is no money left’ is as absurd as it is untrue.

2. Governments with sovereign power do not need to borrow either from
private financial institutions or the IMF. That they borrow and then
have to ‘appease financial markets’ is a self-imposed constraint,
rather like tying your shoelaces together and claiming that you can’t
walk (see Warren Mosler below).

3. Governments do not control the money supply but instead have chosen
to subcontract the provision of the public money supply to private
banks.

4. Governments voluntarily forego the substantial public revenue of
money creation called seigniorage. In the UK this amounts to a subsidy
to private banks of the order of GBP 100 billion a year

5. Money is not a ‘thing’ but a legal relationship, a creation of the
State. It is a token (these days electronic) system which establishes
claims over resources.

6. Money is not wealth. Wealth is land, natural resources and the
products of human labour. Money is only a claim on wealth.

7. Real wealth comes from the production of socially useful goods and
services and investment in infrastructure and skills. Property or share
price speculation and the promotion of pyramid schemes (the process
called ‘financial liberalisation’ or ‘deregulation’) are predatory and
extractive activities which do not create wealth.

8. Banks are offspring of the State. They have a virtual monopoly of
money creation and the legal privileges and protections of corporate
personhood and limited liability. They pretend to be independent and
self reliant but like spoilt teenagers, at the first sign of trouble,
they run home crying and demanding unlimited handouts.

9. Banks do not lend anything. They create money as credit out of
nothing and charge interest on something which costs nothing to
produce. Credit creates an additional debt overhead in the form of
interest which adds to costs in the economy but, as no additional money
is issued to cover it, there is never enough money in circulation to
enable debt to be repaid, causing bankruptcies, recessions and
unemployment.

10. Bank credit does not go into productive investment but into asset
price speculation and ‘loans’ to other banks. When commentators refer
to the banking crisis they are referring to the ongoing collapse of
this classic pyramid or Ponzi scheme.

11. Banks expand and contract the money supply creating booms and asset
price bubbles which collapse into recessions. This is called ‘the
business cycle’ but there is nothing inevitable about it.

12. There must always be a deficit in the private or public sectors for
the money system to function – someone somewhere has always to be
spending more than they are earning.

13. There are only two ways that money can enter the economy: credit
issued by private banks or government spending. If credit dries up,
only government can make good the shortfall or else there is a
recession.

14. If you think that you have ‘money in the bank’, think again. Bank
accounts are only accounting entries representing the bank’s promise to
pay, not real money.

15. Expanding the money supply by government-issued money is not
inflationary except in conditions of full employment. Unlike bank
credit, there is nothing intrinsically inflationary about
government-issued money. Money issuance can always be controlled by
taxation.

Sources

* C H Douglas, Social Credit (1924)

* Warren Mosler – The Seven Deadly Innocent Frauds of Economic Policy
(2010)

* A Mitchell Innes – What is Money? The Banking Law Journal, May 1913:
http://moslereconomics.com/mandatory-readings/what-is-money/

* Stephanie Kelton and others: Are There Spending Constraints on
Governments Sovereign in their Currency? (April 2010)
http://www.netrootsmass.net/fiscal-sustainability-teach-in-and-counter-conference/stephanie-kelton-are-there-spending-constraints-on-governments-sovereign-in-their-currency/

* NEF, Positive Money, Professor Richard Werner: Submission to the
Independent Banking Commission (2010)
http://www.positivemoney.org.uk/solutions/submission-independent-banking-commission/

* Professor Mary Mellor
http://www.positivemoney.org.uk/videos/prof-mary-mellor/

* Ann Pettifor (Editor) Real World Economic Outlook (2003)

* Ha Joon Chang – 23 Things They Didn’t Tell You About Capitalism (2010)

http://www.positivemoney.org.uk/2011/04/15-things-they-dont-tell-you-about-money/

Tags: Critique of Evolutionary Economy

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