The Positive Money Movement and how it can help wealth distribution
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Chris Noakes, a building contractor with a keen interest in the political economy, writes in this week's community education column.
The housing charity Shelter recently reported that during the Covid pandemic, the world’s ten richest people have increased their personal wealth by £400 billion. The Guardian columnist Simon Jenkins, understandably outraged by the richest getting so much richer in a time of general privation, suggested that the only justified policy response should be a wealth supertax.
In the unlikely event that such a measure were to be applied internationally, and was not thwarted by use of tax havens, it would still offer only a limited mitigation after the event. The basic problem is that huge concentrations of global wealth and resources are increasingly being controlled by a tiny minority of people.
It’s easy enough to come to a general conclusion that capitalism as a system is responsible for this undesirable state of affairs, and that it is pushing us to destroy the planetary ecology into the bargain. But if one wishes to go beyond mitigation (which is mostly more of the same) to a genuine structural solution, traditional ideas in political economy tend to stop with some version of centralised state control – and that seems on historical evidence only too likely to end up as an oppressive experience, not even an arrangement well suited to engaging with a new ecological necessity
.The Positive Money organization and its local groups take a road less travelled, based on insights into the nature of monetary and financial systems, and on how these have fundamentally shaped the world we live in.
Money, for most people, is a huge practical and psychological factor in their lives, so urgently required for daily subsistence that they are unlikely to spend time thinking about its nature. The typical implicit assumption is that because it is generally the sole means of obtaining concrete necessities, money must itself be a correspondingly substantive commodity. Almost no-one thinks that it’s even relevant to ask the questions of how it is created, who creates it and what effects this has.
But when one does stumble across the premise that these issues might lead somewhere interesting, the picture which emerges is so far from the default set of assumptions as to invite initial disbelief.
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Concerning the who and the how – who has the prerogative to create money, and what is the method – the standard sensible answer would probably be that naturally governments have a monopoly on lawful money creation. Isn’t that what the Royal Mint’s for, in Britain, and why forging money is a crime? Well, yes and no, but mainly no.
Governments are indeed responsible for the supply of some of the money in circulation. The thing is, in almost all modern currencies only around 3% of money is actual government-created banknotes and coins. In the UK since the 2008 crash, up to 17% of the total supply has been created through Bank of England quantitative easing (QE), whilst the remaining 80% is entirely virtual. It does not represent any tangible stored resource, gold, silver or anything else.
That approximate 80 per cent of all money in the UK is fundamentally owned by commercial banks and hired out to everyone else, with interest charged for the privilege of using it. (In currencies where QE has been less employed, the bank-created component might be up to 97 per cent). In other words, far from being a solid and neutral tool, 80% of money exists only as debt, and only 3% has any tangible form.
There is a constant, pervasive ‘trickle-up’ of money to banks, and therefore to those who own and control them. The banking and financial sector worldwide has an effective stranglehold on all productive economic activity.
That might seem immediately implausible. However, the Bank of England confirmed (in an article published in its first quarterly bulletin for 2014), that commercial bank lending is indeed the principal method of money creation.
Bank loans are the main substance of the money supply, and when a loan is finally repaid, that money disappears from currency, (although the interest paid on it remains as bank profit), which means that to maintain supply and keep banks going – in effect the same thing – new loans have constantly to be made. That explains a lot, and turns out to have vast knock-on effects.
- For part two on the Positive Money Movement, check out the community education column in next week's edition of the Exmouth Journal