Money Creation and Society debate transcript

Earlier today, the issue of Money was debated in Parliament. You might say money is frequently debated in Parliament, but not quite like this.

Steve Baker MP opened the debate thusly:

I beg to move,

That this House has considered money creation and society.

The methods of money production in society today are profoundly corrupting in ways that would matter to everyone if they were clearly understood. The essence of this debate is: who should be allowed to create money, how and at whose risk? It is no wonder that it has attracted support from across the political spectrum, although, looking around the Chamber, I think that the Rochester and Strood by-election has perhaps taken its toll. None the less, I am grateful to right hon. and hon. Friends from all political parties, including the hon. Members for Clacton (Douglas Carswell) and for Brighton, Pavilion (Caroline Lucas) and the right hon. Member for Oldham West and Royton (Mr Meacher), for their support in securing this debate.

One of the most memorable quotes about money and banking is usually attributed to Henry Ford:

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did I believe there would be a revolution before tomorrow morning.”

Let us hope we do not have a revolution, as I feel sure we are all conservatives on that issue.

How is it done? The process is so simple that the mind is repelled. It is this:

“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”

I have been told many times that this is ridiculous, even by one employee who had previously worked for the Federal Deposit Insurance Corporation of the United States. The explanation is taken from the Bank of England article, “Money creation in the modern economy”, and it seems to me it is rather hard to dismiss.

Today, while the state maintains a monopoly on the creation of notes and coins in central bank reserves, that monopoly has been diluted to give us a hybrid system because private banks can create claims on money, and those claims are precisely equivalent to notes and coins in their economic function. It is a criminal offence to counterfeit bank notes or coins, but a banking licence is formal permission from the Government to create equivalent money at interest.

There is a wide range of perspectives on whether that is legitimate. The Spanish economist, Jesús Huerta de Soto explains in his book “Money, Bank Credit and Economic Cycles” that it is positively a fraud—a fraud that causes the business cycle. Positive Money, a British campaign group, is campaigning for the complete nationalisation of money production. On the other hand, free banking scholars, George Selgin, Kevin Dowd and others would argue that although the state might define money in terms of a commodity such as gold, banking should be conducted under the ordinary commercial law without legal privileges of any kind. They would allow the issue of claims on money proper, backed by other assets—provided that the issuer bore all of the risk. Some want the complete denationalisation of money. Cryptocurrencies are now performing the task of showing us that that is possible.

Read the whole thing.

9 Comments

  1. Steve Baker is a good man – he goes just about as far as a person can go in the House of Commons (and a lot further than I thought anyone would).

    What commodity (or commodities) people choose to use as money should be up to them – historically it has been gold and silver, but it could be other commodities.

    As for money lending for interest – I have no objection to it (I find the arguments against “usury” unconvincing).

    The problem is lending money that does not exist.

    A money lender (a “Shylock” – minus the pound of flesh nonsense that the Stratford man just made up) lends out REAL SAVINGS (either their own – or other people’s real savings that have been entrusted).

    Real savings are the sacrifice-of-consumption. Which is why money lenders are traditionally presented as misers – not wild spenders (they do not, at least in their early years, have the money to spend on themselves – or they would have nothing to lend).

    A money lender will be very interested in what-you-want-the-money-for, whether your new factory, or whatever, is likely to succeed. Because he, or she. is trying to work out whether you are good risk – whether you are going to pay the money back with interest, or default.

    Modern practices undermine all this.

    Whether it is the Central Bank (the government) producing money from nothing, or the credit bubble book keeping tricks of commercial bankers – the result is to divorce lending from real savings.

    And that is a system that can only end-in-tears.

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    1. Agree with all of this. Monopoly on money creation is arguably worse than the monopoly on taxes and force, as at least the later is more explicit and potentially more subject to democratic pressure, if you believe in democracy.

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    1. Yes – although it would only cover 20% of the currency and give the government-Central Bank five years to do it (two years to physically show the gold they claim to already have), it is still well worth doing. The arguments the establishment elite are deploying against the gold vote, in their vast propaganda campaign, are astonishing. For example they are saying it is “impossible” for them to produce the gold they already say they have – because it is New York. The proposal gives them two years to physically produce the gold they already say they have – how slow are ships from New York these days? It is almost as if our masters in the international establishment elite are a bunch of crooks – I know this suggestion will shock you to the core of your being.

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      1. China consumes and has delivered hundreds and hundreds of tons of gold, re-smelted and certified to bullion standards by professional houses in HK. Often as part of gold contracts bought on the market. If that can be engineered, the Swiss getting gold from The US is routine. If it is there.

        Factoid: the HK smelters recently saw bars stamped with the Bundesbank symbol passing through for processing. German gold is out there, it is just not held by those whom the Germans asked to hold it anymore. It has been loaned, re-hypothecated, on-lent again, secured against and basically at the end of a fragile chain that can break so easily if markets go down, leaving the true owner robbed.

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      2. Unfortunately it seems are political overloads feel sovreign debt should never be defaulted on, thus the chain ends when all risk taking creditors are paid and the debt has been socialised to be taken by force from taxpayers.
        Such conditions have historically not been conducive to a peaceful society!

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      3. Yes Tim “if it is there” – which it is not, as the rest of your comment makes clear (the gold has gone – it is in Asia, and has been melted down so there are Swiss, or German or…., marks on it). Mr Putin’s boy Max Keiser is a liar, a shameless one, but he does not lie about everything – and what he says about this subject (essentially the same as your own position) is true.

        Both the Swiss and the Germans (and many others – including the Americans themselves) have been robbed – it is just not obvious as people still believe the paper records and have not demanded that the physical vaults be opened for full inspection.

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  2. I’ve just finished listening to “The Creature From Jekyll Island” by G. Edward Griffin on Audible and found it a very insightful investigation of not just the founding of the Federal Reserve (the eponymous ‘creature’), but the past history of 2,000 years of money and banking.

    Worth a read/listen to help understand some of what Steve is saying (the Federal Reserve being modeled on the Bank of England). Various formats are available on Archive.org (https://archive.org/details/CreatureFromJekyllIslandByG.Edward-G.EdwardGriffin), and there are various talks about the book by the author on YouTube.

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