I have over the last week been publishing Helen Schofield's history of money. The series has attracted much attention, and been fascinating. You can work backwards through it, starting here. This is Helen's final instalment, although there may be some references to come. I am grateful for her contribution, and that of others who have commented:
Epilogue
I started out writing this piece trying to encapsulate what I'd learnt from Christine Desan's work. In doing so I discovered I had to also include what I learned from Moshe Arye Milevsky's book about the 1672 Exchequer Stop.
All told the piece turned out much longer than I thought it would because what happened in the 17th century and after was very complicated with much inter-linkage. No doubt it's possible to precis it down but I'll leave that for another time even to others which would be very useful including pointing out any errors conceptual and of fact.
I do strongly believe there's an important message Christine Desan has to convey to us that links MMT to Britain's Industrial Revolution. Here are two of her papers that appear to be the best to read to get this message:-
“The Monetary Structure of Economic Activity”
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3557233
“Banking: Intermediation or Money Creation. The Power of Paradigms in Histories of Economic Development”
https://justmoney.org/c-desan-the-power-of-paradigms-in-histories-of-economic-development/
Christine Desan's book that covers much of what happened in 17th century England when money was re-designed is called “Making Money: Coin, Currency and the Coming of Capitalism.” 478 pages total.
Moshe Arye Milevsky's book is called “The Day the King Defaulted: Financial Lessons from The Stop of The Exchequer.” 218 pages total.
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Thank you Helen – much appreciated.
Is there any feeling among the readers of this blog that conditions in the twenty-first century may end up producing as great a sea-change as those in the seventeenth century did? I read some Economic History at University (some decades ago!) and Helen’s narrative makes me sure that I should read more up-to-date text-books than the ones I still possess.
Jeni, whether your understanding will improve will depend on the textbooks/readings you select. Many are not much different from those of 40 years ago. Sadly. You might gain more benefit, e.g., from first reading J D Alt’s Paying Ourselves to Save the Planet: A Layman’s Explanation of Modern Money Theory (nice graphics) followed by Stephanie Kelton’s The Defict Myth. I would then follow those, if you feel like it, with Randy Wray’s Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems, 2nd ed. I think you would find these of greater benefit than most econ textbooks I am familiar with, but I don’t know them all. My recommendations are all MMT oriented. I would avoid the macroecon textbook by Mankiw, even in its latest incarnation, irresepctive of the fact that it is one of the, if not the, biggest selling macroecon textbook. It is filled with falsehoods. I hope this helps.
This debate about money is what we should have instead of this BREXIT nonsense. Because we the people need to take back control of money, and not just leave it to wealthy ran ‘markets’ to decide how the supply gets carved up. This is why learning about the history of it – whether Graeber, Desan, or Kelton (and many others) is so important and even daring to ask the question as this blog has done is so important. Helen’s inference that Government steps away to let the market profit is spot on in my view.
The question of MMT and Tax seems to me now to have been addressed. There is only one other area I am still uncertain on, and that is the markets response to a currency that is being used in MMT polices. We know that contemporary markets (which to me are inherently corrupt and incompetent anyway because of successive stupid deregulation that increases the moral hazard of foul play) like to punish Governments that spend benignly. What would the policy response on that be? What would be the defensive play? Besides re-regulating the bastards and their economy destabilising practices?
I still read the blog – just popping in.
Thanks too to Richard for enabling the sharing of this.
Yes thank you Richard for allowing my guest post. I just had a strong urge to be a money archaeologist and link up money’s evolutionary design more coherently to better understand how it came to be what it is so far in developed economies.
My take away from this series from Helen and from my readings about the history of debt and of money – Graeber, Desan, Carter, Shaw, Martin……-is that if you know details of the monetary system you can get an understanding of the power struggles and politics of the time, and if you know something of the politics and power relations you can extrapolate the shape of the monetary system. Money is power and power is money…..a dialectical relationship. But is it a chicken and egg conundrum?…..I think not – it is in the political arena that we need to shape the form of money that is required to start to repay our debt to nature. The ongoing search for a new future in an independent Scotland is an expression of this political battleground I think.
@ Jim Osborne
Yes what you say is an important point. Geoffrey Ingham points this out in his book “The Nature of Money” page 58 when he says:-
“One way or another, the heterodox analysis of money points implicitly to the fact that money is socially and politically constructed and constituted – that is, to say, money is a social relation.”
or more simply:-
Money is a social relationship and so is democracy!
I’d like to thank everybody who commented on my guest post which was focussed on the topic “Christine Desan’s Work In Relation To MMT” but turned out with the comments to be much more. Many of the comments challenged me to explore areas of knowledge I’d not known about as I’m sure it did for other readers. Even if you disagreed with some of the things I said in my post it generated food for thought for me which I’d like to think more about and address.
I’ve promised Richard I’d write what I’ve called an Addendum to this guest post which will include additional source references but will also pick up on themes in Felix Martin’s book “Money” which seemed a popular source book for the themes I was writing about in my post. Reading this book carefully and exploring some of the themes that came out of your comments may take awhile I realise. For example, the evolutionary re-design of money I now understand cannot be set aside from the evolutionary development of British democracy or for any other country for that matter.
One of the things that was at the forefront of the evolution of our democracy right from the very beginning was not Parliament demanding the right to control monarchical government borrowing but taxes and as every MMTer knows there has to be an “advance” of money before its “retired” mostly by taxes. Look at the Bill of Rights 1689 Act or the UK Human Rights Act 1998, however, and there’s nothing about any right which forces Parliament and government to use its power to “advance” money, to optimise the economy for the good of all as well as “retire” it.
It’s a simple enough question to ask why should there be one power exercised without the other. Why can you legislate for one as a country and not the other as a basic Human Right? This is a theme I think at the moment worth exploring and I’ve also mentioned in a previous post some other ones such as “volatility”, “trust”, and “bearer instruments” that I think ought to be addressed in an Addendum. I’d welcome knowing any other themes that need developing that emerged from my guest post and comments on it.
I think that an incredibly valuable theme – as the basis for a new Bank of England mandate
The following article reinforces the message that Western governments and their central banks have hardly been operating in the interests of all or even taking the trouble to figure out how they could. Very obviously there’s a very high level of intellectual and moral corruption!
https://off-guardian.org/2021/01/30/avoid-the-great-reset-in-three-easy-steps/
Mz Schofield,
A very helpful series. Thank you. It has, with the developing sources and references from you and consequential commenters, opened vistas that, as you suggest will take time to explore; as it should. I am also now re-reading John Law, ‘Money and Trade Considered’ (1705), with different eyes following Desan et al.,: (there are elements, especially Ch.III that cross refers to your story of the BofE – and Law, as some recent critics have recognised is a much more acute, original monetary thinker than allowed by the old conventional wisdom). I am meanwhile waiting for Felix Martin’s work.
I close by offering Gelpern and Gerding, ‘Inside Safe Assets’ (2016) , a paper that is not primarily a historical analysis, but from a legal perspective (which Desan has done so much to remind us is a framework that – like others where ‘economics’ has a blind spot – is critical to the story); they take a much more nuanced approach to what the term ‘safe asset’ means in practice, particularly in “trading and liquidity management, where collateral often needs to change hands instantaneously, ‘no questions asked'” (p.375). The need to ‘ask the question’ means that it cannot be a ‘safe asset’. This leads to the development of mechanisms tsken from the old idea of ‘legal fictions’ (Fuller) in the practical assessment of safe assets.
Gelpern and Gerding provide a legal perspective that contrasts with the economic literature on safe assets, which emphasises ‘natural’ market supply/demand; they argue instead that safe assets do not, “arise spontaneously. Governments and market participants produce them together, in an iterative political process.”: but also go on to claim that their legal “framework also suggests how the legal architecture of safe assets might set the stage for safe asset crises. When assets are labeled safe and used as if they were safe, but are not made safe enough, they could fail and cause severe damage, invoking ex post government guarantees. The public must fill the gap between safe asset facts and safe asset fictions.”(p.420). It is an interesting corrective to the seductive danger of using ‘safe’ terminology in a fast moving world.
@ John S Warren
Thanks John for “The Inside Safe Assets” reference. I have to confess I had downloaded it and stored in on my computer but was daunted by the 60 page length of it. I usually try to get the jist of such long papers by reading the first few pages and conclusion on the computer and then print it out if it looks of use. I didn’t a few weeks ago I gave up on it too early. I’ll print it out now.
It’s true that a sovereign government can create moral hazard by providing guarantees for private sector so called “safe-asset bearing instruments” (something Richard Murphy hasn’t touched upon with his Green Bonds yet to my knowledge. Richard correct me on this if I’m wrong).
The archaeological money dig people like Christine Desan, Felix Martin, Randal Wray, John Maynard Keynes, etc. and MMTer’s like ourselves engage in can recognise that combining the legislative powers backing government’s ability to exact “tribute” from citizens mainly through taxation contributes enormously to creating “safe bearing instruments” for private sector use since sovereign fiat currencies offer the ultimate last stage “liquidity convertibility.”
However, as the use of the word “bearing” in “bearing instrument” really means “transportable” and we now have a situation where increasing numbers of people “transport” their “liquidity” through the ether using their mobile phones and these daily transactions can amount to more than an individual country’s annual GDP then maybe we do have a problem with sovereign government guarantees to the private sector banking system.
http://www.ecns.cn/business/2021-02-02/detail-ihahfaxh8284091.shtml
But hold your horses most of these transactions net out on settlement between banks and it’s the “savings transportable instruments” we seem to be having the problem with (see fraudulent mortgage bonds that led to the 2007/2008 GFC). This brings us back to government as far as we know being able to offer the safest of these “transportable” savings products or instruments, currently treasury bonds.
So a sovereign government is “Chief Refluxer” how do you move beyond that? And if they’re that then why isn’t it recognised more widely they can play a more positive role in optimising a national economy for the benefit of all? This of course brings us back to making democracy work better for us by citizens finally recognising how Parliamentary democracy is irretrievably tied to “safe” currency creation. The 2007/2008 GFC and Covid pandemic stimulus spending may be boosting that recognition but those who make big money by “hiding” the reality of this conjunction will soon be back in force, that we know!
@ John S Warren
I would like to add that I’ve just got to page 195 chapter entitled “Hamlet Without the Prince” in Felix Martin’s book “Money” and there he states the supposed 1694 Bank of England Act (Tonnage Act 1694) upper limit restriction on the amount of banknotes the privately owned Bank of England could print was lifted for the third time in1866 by a Chancellor of the Exchequer (in this case William Gladstone) to stop a big financial crash because the critically important merchant bank Overend, Gurney and Company Limited was deeply in the red on its balance sheet. The previous “banknote” bail-outs were in 1847 and 1857.
Walter Bagehot goes into some of this in his 1873 book ” Lombard Street: A Description of the Money Market.” It makes you wonder though at the quality of British leadership during the last century and this when Callaghan, Thatcher, Blair, Cameron, May, Corbyn, Starmer to name but a few all believe or believed the government operates on a credit card because it has “no money of its own”! Clearly they’ve never bothered to study any English or British monetary history. You almost feel as though the country may as well accept it elects baboons to office such is the lack of selection discrimination in regard to these leaders, that they know what they’re doing in regard to the management of the economy!
Interesting it was 1866, also the year of the Audit & Exchequer Act requiring BoE to pay on demand
Do you know Richard which section of the Exchequer and Audit Departments Act 1866 this “pay on demand” legislative directive is in?
See the GIMMS report on this
Money creation is a very powerful tool. Money is not a neutral factor in our economy, this fallacy has existed as the majority thought within the economic profession forever. Seems to me that there are more economists awakening to the fact that money creation should be given way more consideration than it has been. Its potential is massive.
Currently private banks decide where all that money gets invested when they decide who or what gets a loan, the BoE has abdicated all effort to control or effect this, other than an ineffective remit to change interest rates. This has allowed banks to make all the decisions about where this money is directed and we the people have little say on how they are allowed to do that.
They also make these decisions based on what is best for their individual institutions, which is often at odds with what wider society actually needs. As a result we allow private banks to create OUR money mainly for property and share loans they consistanlly pump around 85% of all new ly create money into thsie two sectors. This creates bubbles in property and share markets. The banks currently lend less than 10 % of all those loans to the real wealth generating part of our economy, that is to non bank businesses. So the money creation system we have is not serving us well. Sir Adair Turner, ex head of the FCA said that most of what banks do is “socially useless” . So we need to stop this.
Credit expansion certainly allowed a huge growth in credit and business after the creation of the BoE, and allowed Britain to outperform the rest of the world. But it has now become a dysfunctional system that props up unproductive sectors and increases inequality. It is well time for a change. We can make news banks that will create and then invest money to where society needs it most. As Richard suggests this could be used to create a more caring society as well as saving the planet, there is absolutely no theoretical or ideological reason this cannot be done. We created an historic Empire on the back of some adept and focussed money creation, we can do it again, except we can use it for far better causes this time.
@ Vince Richardson
Well said the task of democratising money creation still has a long way to go. 1694 was just the beginning!
Yes it is very useful to have the financial background to the industrial revolution to add to the theories of the Protesant Ethic and the technological advances that were dwelt upon in the past.
I haven’t yet had time to more than skim Helen’s excellent contribution to the debate, but it’s worth noting (and apologies if reference has already been made to this point – as I said, I’ve only skimmed the post, as a result of undergoing my 5th chemotherapy session last week) that the Founding Fathers – or at least Thomas Jefferson – were well aware of this issue.
The following link refers to some of his views on the issue:
https://www.whitlockco.com/thomas-jeffersons-top-10-quotes-on-money-and-banking/
Here is the first quote:
“If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”
Thanks Andrew
And good luck, as ever
Very interesting series – thank you, Helen.
Desan, it seems to me misses in fact, tho’ not in spirit, that tally sticks augmented the money supply and in spending them was an implied (as she would say) ‘retirement’. (And as @ PSR has pointed out she needs a good sub-editor! so thank you for intermediating…)
You show also that since the Industrial Revolution at least, the economy is driven by money and therefore in looking at who creates it and why, we get the answer to what the economy is for.
Logically, looking at that current purpose it’s not exactly pleasing.
We need to remember that the government is us.
If it isn’t, then government and our democracy is at fault – and needs changing.
Thanks Helen.
I will read and read again. Lots of great stuff to take in.
Thanks to all the comments as well. All adds to the development of ideas.
@Helen,
Just to send you down another rabbit hole. I dug up a book I read that was published in 1894. “The history of banks,bankers and banking in Durham . Northumberland and Durham”
It gives some very interesting historical backdrops before going into local and Scottish banking. And covers the period of the Stop.
You can download the ebook free here;
https://play.google.com/store/books/details/A_history_of_banks_bankers_banking_in_Northumberla?id=FlvPs2LEqvEC&gl=US
@ Vince Richardson
Thank you very much Vince for your weblink. It’s not so much a rabbit hole more of a cavern!
I think though I now know what to find there after the archaeological money dig (“Christine Desan’s Work In Relation To MMT”) I’ve just done although you can’t actually see it as an object in the cavern. It will hopefully though blow away all the cobwebs and accumulated detritus of centuries. Let me explain.
I’m not sure whether you ever came across the explanation of the founding fathers of MMT that the choice of the name Modern Money Theory was an insider joke since money wasn’t exactly modern having been around according to some theorists for nearly four thousand years.
This is all well and good but what I think is really important is to ask the question what factors brought money into existence in the first place? Is it possible to narrow these factors down to a core few that will allow us a relatively simple or straightforward way of understanding why we use money?
I think as consequence of the discoveries I stumbled across in trying to write “Christine Desan’s Work In Relation To MMT” together with the help of the many comments and recommendations to read articles, books, and papers in response to what I’d written that it’s now possible to do this.
I’ve already posted the core factors above in a post that I think have emerged for further consideration these being “volatility”, “trust” and “bearing instruments.” Indeed I now think we can go further and put these three factors together and call it Trinity Money Theory (TMT for short). In the Addendum I’ve promised I hope I can justify such a simplification.
I look forward to it
Hi Richard. Thanks for sharing these. I’m very interested in understanding this topic and what it means for government spending. You said at a conference yesterday that Covid was already paid for and national debt had not increased since the start of the pandemic. What source are you using for the national debt? This website suggests it has increased throughout 2020 https://tradingeconomics.com/united-kingdom/government-debt
Thanks again,
Jonny
That is ONS data
They are misrepresenting fact
They claim debt owed by the government is still debt
That is absurd, and not true
In answer to Helen’s question about asset safety and Green Bonds, I don’t see how they could be anything other than safe as they are a non negotiable savings bond fully backed by the government bank which would have issued them….the National Investment Bank or subsidiary such as a Land Bank, Agriculture Bank etc
I was reading the following article by a journalist who claims to be an economic writer and,writing for the Guardian, Observer and Which brand. So you would think he knows his stuff about banking and money….but no.
Here is his winding up sentence;
“The BoE base rate, which was cut to 0.1% last March as the UK prepared to go into its first lockdown, is the cost to high street lenders of borrowing money from the central bank, which they must to offer mortgages and loans to households and businesses.”
Now any hack like himself should know that banks do not borrow money from the BoE to lend onto borrowers ,business or households. Banks create money themselves when they make such loans, and have no need whatsoever to borrow anything from a central bank to do so.
There is a slight clause there in that they may indeed require central bank money if they make too many loans compared to other banks and find that inter bank payments are leaving their bank faster than they are coming in, but that is an indirect effect. With careful lending this should not happen. Banks invariably borrow from other banks in any case not the central banks. Central bank borrowing is usually a sign of a troubled bank or worse still a troubled interbank market.
Until we get honest and informed reporting from our supposedly expert media, the majority will remain in the dark about how money is created and used in our world.
https://www.theguardian.com/business/2021/feb/04/uk-banks-given-six-months-to-prepare-for-negative-interest-rates
Given the sheer amount of money held on central bank reserve accounts now inter-bank payment is rarely an issue
Phillip Inman does not get these issues, I am afraid