“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.
What I particularly like about “Modernizing Money” is that it seems to me to be one of those books that seeks to put clarity above partisan sniping and this makes it as potentially valuable for opponents as advocates. If you are suspicious of the whole family of analyses which range from Positive Money to MMT you could do far worse than reading this book, because if you do, I think you’ll have a clearer basis for continuing to dislike or perhaps even coming to approve of the ideas it contains.
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.
It is a fact that about 97% of all the money in existence is created by the banks and only around 3% created by governments. This has profound consequences which the authors carefully tease out into the open. Consequences which are important and dangerous. Important because they really do shape much of the rest of who our world actually works and dangerous because they remain unknown by too many people. If we don’t know the real workings of our world then we are very easily lied to and manipulated by those who do know.
It is a fact that private institutions create and control the money supply which the rest of us rely on. It is an argument if this is a reasonable or a very bad thing. It is a fact that having a system wherein the banks create the vast bulk of the money we use, means we pay rent on money. Money to the private institutions to whom our governments have given the power of money creation. They get this rent not for doing anything at all. They get it simply because they are allowed to be the creators of money. Not only money from nothing but private profit for nothing. It is an unfamiliar fact, but it is a fact. The question is, is it good? Should we allow private banks to create and control our money leaving us having to rent it from them? Or should we return that power to the people. Money by the people for the people or money for by banks for the banks? It is, in fact, a choice. Our choice.
Once the authors have layed out how how money, money creation and lending are currently arranged, and once they have laid out their objections to this system, they offer an alternative. I won’t spell out their alternative unless people ask me, because, after all, the authors do a splendid job in their book.
What I will note is that what they present as a workable , viable alternative, is very similar to how we all naively thought banking worked all along. Namely that banks should be restricted to lending out only what they have taken in from depositors. The authors address directly claims and worries that such a restriction would collapse global markets by restricting the flow of credit.
Lastly it is a rather satisfying thing, in my opinion, that what Positive Money advocates, is at one and the same time, a potentially sound, clear and ‘new’ way of organizing money, credit and banking, but at the same time, also clearly a return to the form of banking which we all thought we had.
Ideas like Positive Money are worth reading because of their attempt to be clear. They do indicate that they can see the points in the new system which would worry people and address those worries head on. You may or may not be convinced but you will understand what they intend. That on its own is more than can be said of our present bankers and governments.
There is a debate to be had about how money, credit and banking ought to be arranged and who should have their hands on those levers of power. It is a debate which lies close to the heart of the larger debate about the very future of democracy itself.
For me the real value of Modernizing Money’, beyond the quality of the particular argument it makes about money and banking, is that it clearly says there IS a debate to be had, that there are workable and intelligent alternatives to the system as it is presently and, most importantly, that those who say to you over and over that “there is no alternative” are liars. And they are liars because it profits them hugely, in money and power, to keep unchanged and unchallenged, the system at whose pinnacle they sit.
