I took part in an event at The Barbican in the City of London this afternoon. This is pretty much what I had to say:
Another City is possible
Richard Murphy
Professor of Practice in International Political Economy, City, University of London
At The Barbican 8 September 2018
We have fifteen minutes together. It's not long. And I want to use them as creatively as possible.
In my world that usually means I write something.
We can't do that together.
But we can partake in what I do whenever I write. I set out to imagine a better world is possible. That I suggest is what we should do together.
What we're going to imagine is a new role for the City of London.
We're in a good place to do it. We're here in its cultural home at the Barbican
I have known this City for almost 40 years. I started working here in 1979.
Superficially it has always seemed to me that this place beats to the rhythm of money. It seems to be pounds, euros, dollars and yen that flow through its veins.
And let's be clear: that is true. This is the biggest financial centre in Europe. And it has been for a very long time.
But I want to put my first idea to you. Money may appear to be what the City is about. But appearances can be deceptive. I'd suggest to you that the City is about something more important. For most of its history I think the City has really been about something much more important than money. It has been about putting resources to best use.
What resources?
People.
Raw materials.
Physical capital.
Intellectual capital.
And the combination of them.
Ideas, if you like.
Personally, I like to think of the City that way.
Because I think achieving that goal of putting the right resources together is vital in a good society.
If that is what the City has been about I'm going to summarise my first idea: perhaps a little controversially I am going to suggest to you that the City of London has in its past been a really good thing by making good things happen.
Second, I'm going to explain how it achieved that. This is easy. It did it by using money.
Its money.
Other people's money.
And the money its bankers have been able to create out of thin air since they first realised that people would accept their promise to pay, printed on cash and cheques and now implicit in our electronic account balances, as if it was money, which it is.
For centuries the City's banks did this by matching lenders and borrowers. When money was in short supply because it was backed by gold that is what they had to do. This was how, in the end, the UK got hold of its short term money. Banks lent it.
At the same time the City's capital markets — and most especially its Stock Exchange - helped raise money to be the risk capital that businesses relied on. That is share capital. And by doing so it made sure that businesses could access long term savings to which businesses then acted as stewards, seeking to use them to create wealth in our private sector businesses.
Of course I am simplifying things. But not grossly. The City served society. If it earned well, even excessively on occasion as a result, it was tolerated. It was easy to see that the City was a fairly honest broker. It sought to serve society as it saw best.
Sometimes society did not like it. The church was always a bit sniffy about lending money for interest — usury as the Bible calls it.
And sometimes the profit motive looked a little too like trade, which the elite was not too keen to associate with.
But from the Age of Enlightenment onwards big ideas were not the sole prerogative of the Crown. And to make them work someone had to assemble the resources. The City did that.
So, to summarise my second idea, I'll suggest that the City putting together the resources to make things happen was itself a good thing.
So let me, thirdly, tell you why it all went wrong.
In 1971 the USA came off what was called the gold standard. The dollar no longer had a fixed exchange rate to gold. And because in 1971 almost every other currency — including the pound — had a fixed exchange rate to the dollar, we all came off the gold standard as well.
No one really understood what that meant at the time. The world went into partial economic meltdown as a result in the 1970s.
When that meltdown ended we had the economics of Thatcher and Reagan crossing the Atlantic and dominant in the City of London.
And this was when a great deal went wrong. Because what those politicians and the City realised was that in the world after gold banks could create almost unlimited amounts of money simply on the basis of their ability to promise to pay.
And banks did that.
And Thatcher gave them the means to do so.
In 1979 she liberated money to move to tax havens at will.
In 1986 she delivered the Big Bang that broke down most of the institutions that had meant the City's word was its bond.
By 1988 people were being forced from the state pension into private pension arrangements.
Limits on mortgage lending were relaxed. House prices sky-rocketed.
Privatisation was meant to spread share ownership and dealing. It didn't. But it delivered large gains to a few that had previously belonged to everyone.
But these were the symptoms. More important was that what Thatcher, Reagan and neoliberal economics did was say that making money out of money was just fine.
A long time ago Aristotle challenged that idea.
So did the Old Testament profits.
And Islam still does.
And I have to tell you that the critics were right. Making money out of money is a terrible idea.
It encourages greed.
It promotes recklessness.
Excessive debt follows.
As does over-consumption.
And corruption. Tax abuse is as old as writing. It was recorded in ancient Babylon. But it's never existed before on the scale it has from the 1980s onwards.
And we got asset bubbles as a result.
Housing and the stock market in 1988.
The dot.com bubble in 2000.
The debt crisis of 2008.
And, dare I say it, a second global debt crisis is coming our way sometime soon.
Making reckless amounts of debt out of undeliverable promises to pay is what characterises modern banking.
So this is the summary of my third idea. The City's focus on making money out of nothing more than money has been a terrible idea.
And we can see that.
Households now borrow more than they save in this country. And that is unsustainable. Households, unlike countries, can max out the credit card.
There is a shortage of housing.
British manufacturing has collapsed.
Many people have not seen a pay increase for as long as they can recall.
Job security is a memory.
As are decent pensions.
Whilst our public infrastructure is literally potholed.
And as the world has realised the scale of the environmental crisis we face we have done far too little, too late, to address the issue.
So I come to my fourth idea. My big idea. The one where I ask you to imagine.
Suppose we could harness all that talent in the City to do what it should be doing for society, and not for the sake of making money out of society? Is that possible? What would the City do? And how would we benefit?
Let's begin with what should the City do. My suggestion is simple. It is that over the coming years the City has to take on a new role. But not an unfamiliar one. The City has to, once again, become the place that matches up the resources in society to make sure that they are used to best effect.
What does that mean?
It means that the City has to deliver the funds for the society we are not but must become.
It has to think long term.
It has to think in terms of people and what they want again.
And that means serving us all.
By matching savers with those who want to borrow for affordable homes, as building societies once did, before they became banks.
By raising the risk capital for innovation in green technology.
By assisting government in building the sustainable infrastructure we need for a world beyond carbon.
By using its skills to help innovate the tax reforms that might make this happen.
By creating safe, secure, pensions that people can rely on.
By holding capital to account for what it does — which my own profession of chartered accountancy has so clearly forgotten to do.
By rooting out the corruption that has become too prevalent.
By ending support for tax havens whose main job is to undermine society, democracy and the rule of law.
And it can do this if it realises we all — and not just those with money — are its stakeholders — and the City becomes beholden to us all.
If it thinks long term again, as once it did.
But why will this change happen? I confess I don't think it will be entirely voluntary. I have spent too long facing the City to think its vested interests will give up without a fight. Unless they are ‘down' that is.
And they will be down again. I think it is inevitable that there will be another global financial crisis. It's a decade since the last one, and as even the Financial Times is noting, what is so strange is how little has changed as a result.
Next time it really has to be different.
Next time we must not let the City arise from the ashes as it was again.
Next time we must have a new City.
A Green City.
A City for the future.
A City for people.
A City that puts its undoubted talents to use.
A City that serves society instead of leeching from it.
A City that thinks how capital can serve our sustainable economy.
A City of which we can be proud.
That, then is my fourth idea.
Can you imagine that?
Can you imagine the sheer energy of this place that surrounds us if released for the common good?
That is what I came here this afternoon to ask you to do.
I sincerely hope you can.
Because I believe that is the City we can have.
And more than that.
I also believe that is a City we are going to need.
For the sake of our commonwealth.
Which is, quite literally, our future.
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Amen to all of that.
My compliments to you. It’s not just your ideas that keep me here but the quality of your writing. Top stuff.
Thank you for sharing.
That one fell off the fingers yesterday afternoon
But it had been brewing for three months
Thanks
“That one fell off the fingers yesterday afternoon”
I think the basis of that piece goes back a lot further than three months.
John Ruskin: “The labour of two days is that for which you ask two hundred guineas?” Whistler: “No. I ask it for the knowledge I have gained in the work of a lifetime.” (James Abbott McNeill Whistler)
Indeed
Congratulations on an inspirational address, which articulates exactly and concisely what needs to happen for the mutual prosperity and survival of future generations. And as you say, it can be done. The ‘energy’ exists. It just needs to be redirected – necessitating the political and individual will of the main players to set it in motion.
What was the reaction?
Pretty good
But questions on how it could happen
Start telling the story when you think it impossible I said
It was what we did with tax justice
Upon further reflection I think that what is really good about your speech is that although it mentions some of the darker forces enabling bad behaviour, ultimately it is spending more time providing a better vision that includes the financial sector – co-opting them into the ‘courageous state’ mindset.
After all, the City is just a service really – they are just doing their job as laid down by law and whatever legislation they work with. They could still make a decent living even if they were better regulated.
Mind you – we still have to deal robustly with the sources of such bad behaviour – the bent politicians pandering to extreme rent seeking behaviour and the greedy rent seekers themselves.
I agree with all that
You get my goal
And the required change is enormous
Good stuff. Have you seen This? Does it make sense?
https://www.ineteconomics.org/perspectives/blog/mainstream-macroeconomics-and-modern-monetary-theory-what-really-divides-them
No….what I have read is fantasy to pretend MMT does not exist
http://bilbo.economicoutlook.net/blog/?p=40313
Help!
What percentages of City transactions occur in pounds, euros, renminbi, Yap stones and US dollars. And what does this mean for MMT which is sometimes (mis?)represented as a USA-centric worldview because of the special status of the dollar as the global currency, e.g. if you want to buy oil, it’s dollars – and in 2017, the bill seems to have been £1.6Bn [https://tradingeconomics.com/united-kingdom/imports-of-crude-oil] – not negligible. I’m asking genuinely, not attacking.
I actually do not know
But it does not matter very much
MMT embraces there being trade balances
“what does this mean for MMT”
An interesting question I have asked myself too. When you are talking about the global uses of money you are inevirably talking about the biggest global market – FOREX. And when you have done that you have gone a long way past the use of money to pay for trade – to buy things from each other.
According to Bill Mitchell FOREX was 73.5 times (7350%) world GDP in 2008. That works out at about $3.3 trillion per day and only 2% of that was trade in goods and services. The rest was speculation. If MMT is about how a government provisions itself as Randy Wray says then clearly the greatest amount of world financial activity is nothing to do with MMT. And if main-stream economics is about the distribution of scarce resources then it is not abut that either. It is a supra-national activity of a different kind entirely than is envisaged by both main stream and heterodox economics.
The obvious question about this level of FOREX is what global public purpose does it serve then? The answer seems to be none. In which case a number of questions follow – why do we let it happen? How do we stop/control it? How did it happen in the first place? What effect does that have on other global markets and national economies?
I don’t really know the answers to these questions but I would say I can’t see how MMT really applies as we do not have a global currency or a global central bank or global taxes. But I would say it looks like a huge flaw in the current system that can only be addressed by international co-operative action. But the current set of institutions which operate in that sphere – the IMF, World bank, BIS etc seem unlikely even to see it as a problem nevermind address it. It seems to me this is another area of financial activity beyond MMT which requires ‘MMT-ing.’ We need someone to replicate an MMT style analysis of world financial activity or extend the current ideas to create a ‘global MMT.’
Anthony Molloy says:
“….special status of the dollar as the global currency, e.g. if you want to buy oil, it’s dollars — ….”
Not any more it isn’t. Not exclusively. Big players have created alternatives. Dollar hegemony now relies entirely on violence, and the threat of violence. It cannot survive indefinitely.
The civilised World will not stand for that and the Americans will have to learn to live with it.
Times should have have changed after the 2007/2008 Financial Crash central banks should no longer be “lenders” of last resort but “dealers” of last resort. The Bank of England and The City need to take this on board:-
https://www.nakedcapitalism.com/2018/09/marshall-auerback-central-bankers-dealers-last-resort.html
Probably they won’t because they’ll be busy fighting McDonnell’s proposal to give labour a slice of the action now that the majority of the public are tired of the “Labour is anti-semitic issue”.
https://www.theguardian.com/politics/2018/sep/08/john-mcdonnell-labour-proposal-workers-ownership-funds
I had read the Auerback – well worth doing
Indeed it is worth reading if only to tri-angulate what we already know. If there is one good thing about ideas that challenge it is when you find them elsewhere – very healthy – thank you Schofield.
Gillian Tett’s credibility is somewhat restored as comments attributed to her I find particularly incisive. She may not be a change agent as such but she is good reflector. I just wish that she did not tend to behave as if she is above it all.
The growth of fascism in Europe and the US though brought about by discontent caused by excessive rent seeking and the retreat of the state in lieu of market forces remains my biggest worry.
I worry for obvious reasons, but I also worry that financial institutions can hide behind fascism – helped by established political parties like the Tories who have used hard-right language to maintain the status quo when it is quite clear that neo-liberal capitalism has basically stopped working.
All fascism does is find someone else to blame and those who are really culpable escape accountability. And then the energy to change is dissipated into less meaningful areas and potentially neutered. Or made harder at least.
I have to say though that considering the contemporary Conservative party of the UK, I have never ever felt so callous toward a bunch of people as this lot we’ve had since 2010 to the point where finding reasonable words to chastise them fails me completely. I get so angry with them that I feel ashamed.
I wouldn’t
The shame should be theirs
Wish I’d been there, a truly inspiring address Richard.
Thanks
Thank you…
This short video from Dr Kelton is interesting – https://www.youtube.com/watch?v=q9OaLpOtWmg
Thankyou for your talk yesterday – it was truely thought provocking and inspired some lively debate among the participants in the following session! When we find ourselves paralysed from action by the ‘but how?’ your concept of storytelling the impossible open minds to how we can start to inch towards a seemingly impossible Social Utopia.
We all live by storytelling
It is what makes us human
Where do I sign up? Thanks for an inspirational and hopeful speech.
Great piece Richard.
Have you seen Thomas Edison’s comments on banks as money brokers in 1921?
I read his comments just after reading your Barbican lecture, and they seemed to strike a sympathetic chord.
He has quite a lot to say about banks generally, and covers rent seeking. His comments on gold are very interesting and prescient.
Edison also provides yet another early 20th century endorsement of the not-so-modern fiat money system:-
“Now, here is Ford proposing to finance Muscle Shoals (nitrate and water power projects) by an issue of currency. Very well, let us suppose for a moment that Congress follows his proposal. Personally, I don’t think Congress has imagination enough to do it, but let us suppose that it does. The required sum is authorized — say 30 million dollars. The bills are issued directly by the Government, as all money ought to be. When the workmen are paid off, they receive these United States bills. When the material is bought it is paid in these United States bills. Except that perhaps the bills may have the engraving of a water dam, instead of a railroad train and a ship, as some of the Federal Reserve notes have. They will be the same as any other currency put out by the Government; that is, they will be money. They will be based on the public wealth already in Muscle Shoals, and their circulation will increase that public wealth, not only the public money but the public wealth — real wealth.”
Edison’s other comments are VERY well worth reading – http://hereticus-economicus.info/thomas-edison-and-henry-ford-explain-modern-monetary-theory-in-1921/
PS: I spotted this on Stephanie Kelton’s Twitter a few hours ago, and thought it was worth highlighting to your readers who don’t look at Twitter, and may not have heard of it.
I wasn’t a fan of Edison since I believe that it was he who electrocuted an elephant on film in order to demonstrate the power of electricity. Poor animal.
However, these statements to me are the MMT equivalent of the Dead Sea Scrolls as far as I am concerned.
Revelatory. My – how need corporate thinking like this right now. Please.
Edison’s involvement in electrocuting an elephant may be exaggerated –
http://edison.rutgers.edu/topsy.htm
However, the event does appear to have some connection with the move to use the electric chair on humans!
A comment in a recent thread I’ve lost, and which may well be closed now anyway, came from a contributor suggesting that his ideal for the UK economy, was for a capitalist economic model with a bit of left wing, socialist tempering.
This is completely upside down.
A capitalist economy simply cannot work at all without the collective, social-ist structures that enforce contracts and ownership rights. Capitalism needs a society to thrive in. To exist in, even.
Without a social infrastructure the default system is based entirely on the currency of violence. The law of the jungle. History shows us how well that has worked since the experience of mankind was first written down, and the aural tradition goes back way before that, to the very beginnings of social structures.
The cappuccino economy is built on the foundation of a strong state
The cappuccino economy is the only one that we know that works
Building on Schofield’s Auerback link (thank you) leads me to suggest that the Bank of England could be fundamental to the the ‘help’ that a ‘new’ City needs to properly serve us all.
http://www.progressivepulse.org/economics/a-new-role-for-the-bank-of-england
Thanks Peter
Tweeted
All that and beyond. The ‘commonwealth’ the ‘common good’ you speak about includes ALL the world, if we wish to be fair, to care and to survive.
Do you think Corybn’s labour would nationalise high street banks? I recall readin previous governments came close…
I have argued we need to nationalise the banking platform – like network rail – and licence operators
Hi Richard,
Thanks for the above – inspiring and insightful as always.
One particular part of the “what went wrong” section chimed particularly with things I have been thinking about recently – “Limits on mortgage lending were relaxed. House prices sky-rocketed.”
We had a visit from some French friends of ours and discussed the subject of house prices. Their house (which is beautiful and larger than ours – and is on a plot about 10 times bigger) cost less than a third of the cost of ours, and they paid off the mortgage in 15 years. I found this a slightly painful conversation as I considered the 18 years left on my mortgage!
Now of course France has a much lower population density than the UK which is often used as a justification for this difference, but it is only part of the story for values in both countries (I am of course aware that in some parts of France, property is as ridiculously expensive as it is here) . If residential house purchases (forgetting buy-to-let for a moment) are mainly funded by mortgages then the key drivers for house prices are incomes and the income multiple at which banks will lend. If income multiples were lower then the allocation/rationing of housing would happen in the same way, but just at a lower overall level.
The crash in interest rates since the 2008 recession has made the impact of mortgage lending rules more obvious. With fixed income multiples on mortgage lending this would have put money in the pockets of all house purchasers (not just those that already owned a house), but via the policy of lending based on “affordability” resulting in larger mortgages and higher house prices, that money has been diverted instead to the banks. It is superficially appealing as an individual to see the fact that the bank will lend at a higher multiple as a benefit – I can buy a bigger house! But overall it is an illusion.
I believe the solution to this is to introduce and enforce income multiples for property lending. These should be set (and adjusted over time) with the aim of creating a near standstill in property values (it not being fair to create a crash) to give incomes a chance to catch up.
The problem with all the above is of course the buy-to-let sector and multiple home ownership more generally. If nothing were to be done about this sector then they could use their financial clout to hoover up houses that (by virtue of income multiple limits) might be out of the reach or owner-occupiers. Is it time to accept that the private sectors is a failure in relation to providing housing for low to middle income families? Examples such as that on a recent BBC report about a whole street being evicted so that their houses could be used to provide “emergency accommodation” for homeless people would seem to support that view.
I think we need a tax regime that discourages the holding of multiple properties (whether buy-to-let or holiday homes) – perhaps this could be achieved by allowing councils to levy a multiple of the council tax on such properties – although an expert on tax (anybody? 🙂 ) could probably come up with a much better solution. This would need to be combined with the construction of affordable homes to rent by the state sector.
The state of housing in this country is a tragedy, with effects ranging from an over allocation of household resources toward rent/property costs to (at the more extreme level) poverty and homelessness. It is a clear example of the prioritization of finance over people.
In relation to my comment above about evictions, the link to the story https://www.peterboroughtoday.co.uk/whats-on/eviction-of-72-tenants-at-peterborough-s-st-michael-s-gate-set-to-feature-on-bbc-s-newsnight-1-8600889
That is a lot to get into 15 mins, enjoyed it, thanks.
Perhaps a follow up article that takes the historical perspective further back?
Bretton Woods. What it was and why it happened?
The wars and who funded the belligerents?
The European empires and emerging US empire – the bankers struggle for supremacy?
The City from it’s origination as the Roman trading post at the limit of the tidal Thames. The evolution as a INDEPENDENT state – it’s various European bankers that gave name to it’s streets.
Maybe a list of the many instruments and trading activities of today – the use of IT and AI (algos) that means much activity is purely profit based with no other purpose done in nano seconds – without any duty or oversight.