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 £100 bn 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 that establishes claims over resources.
6. Money is not wealth. Wealth is in the land, natural resources and the products of human labor. 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 liberalization’ or ‘deregulation’) are predatory and extractive activities that do not create wealth.
8. Banks are the 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 spoiled 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 the 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 that 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 the 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.
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…what-is-money/
Stephanie Kelton and others: Are There Spending Constraints on Governments Sovereign in their Currency? (April 2010)
NEF, Positive Money, Prof Richard Werner: Submission to the Independent Banking Commission (2010)
Prof Mary Mellor
Ann Pettifor (Editor) Real World Economic Outlook (2003)
Ha Joon Chang – 23 Things They Didn’t Tell You About Capitalism (2010)
April 29, 2011, by Ken MacIntyre (Guest Author)