I have posted a new podcast this morning:
It seemed to me that this was the vital first port of call for a podcast series.
The script is:
Hello, I'm Richard Murphy and I want to talk about money. Actually, what I really want to talk about is what money is, and the answer is that all money is debt. That's it. That is all you need to know about money. It's debt. And there's nothing else to it.
Even notes and coins are just a part of the national debt that the government supposedly owes to the people of this country. If you don't believe that, read what is written on a note. It says, I promise to pay the bearer that acknowledges the debt.
And bank accounts are just the same. They too acknowledge debt. If you think that there is something physical like gold or silver or something else, including notes and coins in the bank that represent your bank account balance, then I'm sorry to say that you really are wrong.
The only thing of importance in any bank is a computer. It's the one that prints out your bank statement. That statement is the only evidence that you have that the bank owes you money presuming that you are in credit, which means that they're in debt to you.
And again, if you don't believe me, think about what happens if you owe the bank. Your statement now records what you owe them. You don't need to have physical, gold, silver notes or coins to owe them money. In fact, you owe them precisely because you haven't got those things.
Well, the same is true for them. They owe you, but they do not necessarily have any notes, coins, gold or silver to make a physical payment. And that's especially true of gold and silver because they have no relationship with any of our money at all right now.
So money is debt and is as good as the trust that you have that you will be paid because that is all there is to it.
Well that and the fact that the government guarantees that any debt your bank owes to you up to £85,000 will always be paid.
So when it comes down to it, money is all about the quality of the government's promise and not much else. That's why you need to take government really seriously when we talk about money because they guarantee all the money that we have in circulation at the end of the day.
And that's also why you need to stop thinking that bankers are really clever people. All they can do is a bit of electronic bookkeeping, but it's that bookkeeping that makes our economy work because it's that bookkeeping, which records what and where our money is.
Money is just some entries in an accounting ledger that records who owes who, what, and that's it. That is what money is.
Understanding that is key to understanding everything in the modern economy.
The trouble is our politicians don't. Most economists don't, and as a result, most journalists don't. If you get it, you are ahead of all of them. But then as I will explain in podcast to come, you have to think all through the consequences of that because they really do change our understanding of what the economy looks like.
Thanks for listening.
A YouTube version, if you prefer that, is here.
I am not sure all the wrinkles of doing this are sorted as yet, but I am learning.
This one was recorded on Garage Band, which seems to produce a better sound than Audacity. The transcript is via Descript, as is the YouTube. Graphics are from Canva. The errors are all mine.
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Clear and simple. No excuse now for not knowing what money is. No excuse for government to say ‘;we cant afford it’. Therefore all government spending is a political decision so austerity is pointless and the ‘Magic Money Tree’ does exist. The government can spend what it likes within the capacity of the economy — adequate work force, resources and the politc dal will to do what is right for the coomon good,
I will be exploring this issue over several more podcasts – repetition is a part of getting messages across
The capacity of the economy is the key thing.
I re-read Robinson Crusoe some years ago. After he had been on the island a few years, there was a second wreck. In the Captain’s cabin he found a bag of gold coins and threw it down in anger. He said he would have exchanged all of them for six good pairs of English shoes.
Wealth is the ability to command goods and services. Wealth is not money.
I like your analogy and Adam Smith would too in the sense that division of labour is greatly enhanced with the tool of money because that’s what money is. No human division of labour taking place on Robinson Crusoe’s island!
Just wondering how you then see the relationship onwards – using some of my (admittedly wooly) understanding from Marxism does this ultimately make money a claim on (ultimately) someone else’s labour time – something which requires a mechanism of enforcement?
Er, no
It’s a promise to pay
Why is that a claim on Labour?
It does represent a legally enforceable debt, but what you claim does not necessarily follow
Richard, a small niggle, but while it makes the point that all money is debt; it may be helpful to say that all debt is not money. If you don’t say it somebody ill-disposed to critics of neoliberal economics may say it to a new listener/reader and confuse or deflate them. Neoliberals love to sow confusion. They can’t survive without it. I have just listened to a neoliberal economist trying to claim service industry inflation is the big problem (BBC Scotland GMS); and having grudgingly to admit wage rises caused by the Brexit effect may have some impact, when challenged by a BBC journalist who knows nothing about economics, but is perhaps beginning to realise the standard economics model is built on sand.
There is a need for brevity too….these will all involve some compromise
@ Richard,
“And there’s nothing else to it…….Even notes and coins are just a part of the national debt that the government supposedly owes to the people of this country.”
What is counted as National Debt and what should be counted as National Debt isn’t usually the same thing. The rules are slightly different from country to country. The Americans, for example, don’t include their coinage. There is always some disagreement on this. You yourself have argued that the bond holdings of the BoE should not be counted, because they are Government owned.
However, if the BoE has issued money into the economy, in the process of their purchase, they are also issuing more debt, commensurate with their bond holdings. Therefore, it does follow that they should be counted.
The podcast is about the UK
Coin is effectively in U.K. national debt but is only £4 billion or so anyway.
And your argument re money is just wrong – because as you know that money is not in national debt and the bonds are.
Why are you trying to make a fool of yourself now by being a rather foolish pedant?
@ Richard,
You’re saying ” It (Money) is debt. Even notes and coins are just a part of the national debt that the government supposedly owes to the people of this country” but in your reply to me you have also said ” because as you know that money is not in national debt “.
Yes, of course, I do know that – at least according to a mainstream definition. The contradiction can only be resolved if we distinguish between what is and what should be.
But are the central bank reserve accounts properly classified as debt as they cannot be redeemed by those who hold them as a class?
Maybe Alex is thinking of Marx;s Labour Theory of Value which measure the value of a product by the amount of labour time put in to produce the product,t both current and historic through the supply chain. Therefore not directly related to money as such.
It’s an eat little theory that has little relationship with reality
What i was thinking was that if money is debt, and a promise to pay one must have means to pay which means getting hold of the money commodity through the use of other commodities (liquidating possessions, earning it in work) therefore it ultimately claims labour time (working, or the prior purchase of possessions through labour, whether one’s own or someone else’s), and therefore it must ultimately rest on claiming socially necessary labour time. If I have £10 in my pocket i can claim someone else’s time to serve me a pint in a London pub (and all of the work required to put said pint in said pub). Question is, does money rest on work? If I understand Hudson properly, Ancient Sparta was reluctant to get involved with money until they needed to pay soldiers.
Always reminded of zombie films when someone has thousands of pounds and no-one cares any more as the vast majority of the society is eating brains rather than working. Who cares about the money when there’s no work going on.
Very clearly money is used to acquire labour
But what is clear is not everything acquired with money is valued on the basis of its labour input so as a theory it is an inadequate explanation of value
I can’t see this on Pocket Casts (yet?)
Hopefully it’ll show up at some point
I am trying to work that next stage out
Richard
Ive always been a bit confused by the phrase ” all money is debt ”
What about double entry bookkeeping ? There must be another side to it
then I came across Hyman Minskys comment & it began to make sense
” everyone can create money ” but ” the problem is to get it accepted ”
You can create a £ denominated ” money ” by writing ” IOU £5 ”
” but the problem is to get it accepted ” by someone
my source for this was Wray ” Making money work for us “
@ Rob,
“Ive always been a bit confused by the phrase ” all money is debt ” What about double entry bookkeeping ?”
All money is a debt ( a negative) to the issuer and an asset (a positive) to the holder. The two always sum to zero. This is the double entry aspect to it. Therefore if the issuer is also the holder, as the government is when it collects taxes, the two always cancel. In this respect we can say that the Government neither has, nor does not have, any money of its own issue.
Which is drivel Neil, because very clearly it has money of its own issue, as a matter of fact, precisely because not all the debt is cancelled -0 which is exactly that the double entry shows
The is a last warning: please post sense or I will need to ban you again for being a time waster
You, like a Chicago economist, are assuming a perfectly clearing market at any instant point in time. It’s crass when they do it and it is if MMT does it too.
@ Richard,
I’ll take myself off for a while if you only want a “RMMT” (Richard Murphy Monetary Theory ?) rather than a MMT line .
It’s your football and if you want to take it home…..
I can’t claim any originality for my last comment. Google ” Warren Mosler MMT: The Fed Neither Has Nor Doesn’t Have Dollars”
And he is wrong, yet again
I think a Steve Keen would entirely agree
It’s an absurd statement to make. It’s like saying a company has no balance sheet because the debits equal the credits.
He and I are scheduled to talk soon to arrange a debate.
Mr Gray I think you may be tangled in the assumption that because all money is debt, all debt is money. It is incumbent to read Mehrling ‘The Hierarchy of Money’. Mehrling also understands the double entry.
The creation and destruction of money (through for example tax) is a continuous process that never ends really. Mosler/Neil W seem to suggest the ‘book’ reverts to zero everyday or something. How could it when you think about how the economy works?
But also, Mosler surely flies in the face of state sovereignty currency issuance and what we know about fiat money and how we got out of the 2008 crash?
You are right
Broadly agree but would clarify even further.
I prefer the Central Bank of Finland version which starts like you by defining money as debt but then goes on to explain that this means that it is both an asset and a liability. It’s very important to make that clear, not least to help people understand what gov debt is and what it isn’t.
On bank notes, it should also be clear that the promise is nothing of the sort. It’s merely a tip of the hat to history. It means nothing.
I appreciate that you are not a great fan of bankers, but merely equating them with electronic bookkeepers grossly underestimates the money creation and management process.
Good luck with the other podcasts
Hi Richard.
Great endeavour.
Will the podcast be accessible on Spotify/Apple Podcasts? Just looked and couldn’t find you
Apparently Apple take three weeks to approve you and Spotify require an unspecified number of editions before they will add you.
I am working on it….
Give me time
This is just my opinion so feel free to ignore but I wouldn’t tell people they are wrong as I don’t think people like being told they are wrong, as in where you said if you think there is something physical behind money then you are wrong. It’s possible to phrase things in a way that doesn’t involve “you are wrong”, even if you just say the statement or idea is wrong rather than the person. Maybe you felt the same way as you felt the need to apologise (“I’m sorry to say that you really are wrong”).
I understand the robust approach you sometimes take to comments in your blog but I’m guessing the podcasts are aimed at a wider audience of more laypeople and so maybe a more conciliatory approach would be more appropriate. Other people might think I’m overreacting and this is no big deal, but in my opinion these small details make a difference. If you know any teachers maybe ask them if they would ever tell a pupil “you are wrong”.
I want to incite a reaction. The language is deliberate.
`@ Neil W
Id agree with Richard
The collection of taxes is a separate double entry & a role reversal of entries
The amounts will differ
@ Rob Gray,
Yes but this is a separate issue from the argument that assets and liabilities net to zero.
As Stephanie Kelton often says the Government’s deficit is exactly equal to everyone else’s surplus. This is because the Government ends up holding the liabilities whereas you and I, if we are lucky, end up holding some assets.
When we pay our taxes the Government cancels off its newly acquired assets against some, but certainly not all, of its previous liabilities in its currency of issue.
So in this sense it might be possible to object to Mosler’s line on the grounds that the US Federal Government has ‘negative dollars’ but we all should agree that this isn’t what anyone means when they say that a currency issuing Government doesn’t need dollars, or pounds, to be able to spend, in the same way you or I would.
Your comments continue to border on the absurd.
Having suggested that the government will use violence to impose its desire that the people of the country accept the currency that it creates so that it might buy goods and services from those it firstly forces into unemployment, you now claim that a currency issuing government does not need dollars or pounds to be able to spend. I note the caveat ‘in the same way you or I would’ but that makes the pretence that the dollar that is actually used to buy goods in the real economy is not created by commercial bank, when is a matter of fact it is.
Very politely, you are a deeply confused man who appears unable to string together a coherent argument when commenting on this site.
Would you like another go? It’s almost too amusing to ban you.
@ Richard,
On the one hand you claim my comments are “absurd” but on the other you have acknowledged that I do understand the essentials of MMT. In other words, what you consider to be absurd is MMT itself.
Yet you do present yourself as a MMTer. No-one is saying that there can’t be any discussion about the finer points of the theory but your criticisms go far beyond this.
You really need to make up your mind about which side you’re on.
I am on the side of MMT, rationally presented
That is really not hard to understand
Now, why not address the absurd paradox you created?
Good start…..
Particularly like having the transcript – easier when on a train.
Thank you for putting up the transcript. I read better and quicker than I listen, so that is much more use to me, and I am unlikely to be the only one like that.
I will try to do them, at least for the shorts
Simple. Straight to the point. Superb.
Thank you
And for deaf old fools