Britain and Europe’s economic discourse is embarrassingly er…vulgar. Treasury and Finance ministers’ determination to paper over the role of big banks in the 2007-9 crisis, and instead use the opportunity to re-structure Europe’s welfare states, is both crass in economic terms, but also crude politics.
Politicians are influenced by what I call the kitchen table monetarism of Mrs Thatcher and by the views of Mrs Merkel’s “Swabian housewife”. These reinforce the primitive ideas about money once expounded by Mrs Thatcher, namely that:
“The state has no source of money, other than the money people earn themselves…. There is no such thing as public money. There is only taxpayers’ money.”
Another regular assertion is that nothing can be done without accumulating ‘savings’. These assertions were contradicted in 2009 when it turned out that the state – via the ECB, the Bank of England and the Federal Reserve – did have a source of money.
It was named QE, Quantitative Easing, and used (mainly by the Federal Reserve) to mobilise trillions of dollars that socialised the losses of German, British and American banks. The money was created by central bankers 'out of thin air' – without once dipping into the pockets of taxpayers, or drawing down ‘savings’.
There was nothing new in this. QE is just another name for the everyday activities of central banks. In the past these were known as ‘money market operations’ – carried out since about 1694 when the Bank of England was founded. The difference between then and now is in the scale of operations undertaken by central bankers since 2009.
In an e-book published yesterday – Just Money: how society can break the despotic power of finance (also available in Kindle edition) – I map out how money is created 'out of thin air' – not just by central banks, but mainly by private commercial banks. (The latter ‘print’ about 95 per cent of the money circulating in, for example, Britain.) Above all, how this money creation – if managed well – can be used to finance all of society’s needs, not just those of the rapacious finance sector.
Advanced western democracies – unlike many countries in Africa – are beneficiaries of monetary systems that evolved over time as a result of great power struggles. These centuries-old contests were waged between the ‘robber barons’ of earlier times and broader, democratic society. The ‘robber barons’ were effectively defeated, and from the late 17th century onwards, western monetary systems were transformed. They became a great public good capable of serving the interests of wider society, not just the rich.
This victory over powerful financiers and creditors led to a fall in rates of interest on loans, to great innovations and to progress in health, housing, engineering and the arts. It was a public good that was always put at the disposal of military generals engaged in costly wars!
Over the last thirty years the system has been recaptured by today’s modern, technologically advanced ‘robber barons’. Just Money explains how society can once again regain democratic oversight and management of the public good that is the monetary system.
Finance capital has no greater fear than this: democratic regulation and reform of the monetary system.
We know the system can be regained for society, because its been done before. In the 1930s, western leaders, under political pressure and advised by Keynes, came to understand that the banking and finance sector had used the dogma of ‘freedom and liberal finance’ first to gain control over, and then trash, the global economy. So they began a two decade-long process that stripped the sector of powers, and restored democratic oversight and regulation of the monetary systems of western democracies.
After World War Two there followed a period of prosperity still known as the golden age of economics.
Today we face grave new threats to our security, the most urgent and costly of which is the need to transform our economies away from fossil fuels and excessive consumption.
That is why it's time to talk about, and talk up, monetary reform – to ensure that the public good that is our money system once again serves the interests of wider society, not just those of private wealth.
* More on Just Money: http://www.ekklesia.co.uk/node/19919
© Ann Pettifor is director of Prime Economics (Policy Research in Macroeconomics) at http://www.primeeconomics.org/. She is a political economist, writer, and analyst of the global financial system. Her latest book is Just Money (http://www.primeeconomics.org/?page_id=2389). Ann is co-author of the Green New Deal and predicted an Anglo-American debt-deflationary crisis back in 2003. She is best known for her work on the sovereign debts of low income countries and for leading Jubilee 2000. Ann is also a fellow of the New Economics Foundation. Her Ekklesia blogs are here: http://www.ekklesia.co.uk/annpettifor Ann Pettifor's website is Debtonation: The Global Financial Crisis - http://www.debtonation.org/
This piece is reproduced, with grateful acknowledgement, and has also appeared on Huffington Post and on Prime Economics, both on 13 January 2014.