In my short video this morning, I argue that any politician who says there is no magic money tree is not telling the truth. There is. It's called the Bank of England, and they can tap it for cash whenever they want - so long as they keep inflation in mind.
The video can be viewed here.
The transcript is:
There is a magic money tree.
I'm sorry to tell you that all the politicians who deny the fact are simply wrong.
The magic money tree is called the Bank of England. It's the government's own bank and they can tell it to create money for the government to spend whenever they like, how often they like, in whatever amount they like.
If that isn't a magic money tree, I'm not sure what is.
All we actually have are politicians who collectively deny the power of the UK government to create money to spend for our collective well-being, which they might then have to claim back, by way of taxation at some time in the future. But to pretend there is no magic money tree, when it was that which bailed us out in the 2008 financial crisis, and that which kept us going in 2020, Is just wrong.
A falsehood.
A lie, if you like.
And that really annoys me.
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“politicians who collectively deny the power of the UK government to create money” because to do otherwise would be to stop in its tracks the move from governments that can do something to govs’ that can do almost nothing = neo-libtardism. All the (big) political parties kow-tow to this reality/dynamic.
Couple this with the aim of the USA to reduce the UK to some sort of wholly-owned subsidary and the rationale for imbeciles such as Reeves (groomed in Washington on how to think & what to say) becomes clear. Ditto the role of the media: to reinforce the neo-libtard message:
Vote LINO – because the neo-libetard utopia is just around the corner.
& UK lemmings in their millions will do just that. Simply amazing.
MMT = Murphy Murmers Truth
????
No, he annunciates it loudly and clearly.
I don’t find Modern Monetary Theory especially descriptive as a title .. I’d prefer something like Fiat Money Practice.
It annoys me too.
Whilst I agree that the BoE’s ability to create unlimited amounts of money is indeed a magic money tree, that seems so outrageous to most people that they find it difficult to believe. This doesn’t sound like a good place from which to try to explain the truth.
So I wonder if a good way of countering it is, indeed, to use the credit card metaphor so beloved of politicians. But to use it correctly, in a way people can understand. We can do this by asking the basic questions that anyone would ask when taking out their own credit card.
A key question to ask is “what is credit limit”. The answer is that there is no credit limit, credit is unlimited. That’s because the government owns the bank.
Secondly, what is the interest rate. The answer is zero. It’s impossible for the government to pay net interest because it owns the bank, and any interest it did pay would be paid straight back to the government.
Thirdly, what is the minimum monthly repayment. The answer is again zero. The government does not have to repay net money to the Bank of England, indeed it can’t, because it owns it’s own bank.
Those are three questions anyone sensible would ask when taking out a credit card. The answers should cause anyone sensible to think a bit more. Armed with such a credit card surely people would ask why the government is not spending more. That’s the right question.
Sort of….but I am not wholly convinced…..
Mr Kent: “So I wonder if a good way of countering it is, indeed, to use the credit card metaphor”
Don’t need to; Produce a Fiver or tenner and ask any person what it says on the note. Ask them who printed the note & then why more can’t be printed – either directly or electroncially. Point out that the BoE is directly in control of how much or little money is printed.
Ask them what would happen if they tried to print?
That this explanation is never attempted by the media – is proof – if it were needed that there can be no discussion of money because to do so would explode all the myths.
@Mike Parr
Well yes. Lots of ways to explain it. I’ve tried a few.
If politicians are using the credit card metaphor, and they are, perhaps easier to go with that, go with the flow, even with that metaphor they are using is wrong.
I figure that’s easier than trying to talk about something different. I’m looking for the easiest way to explain, given the nonsense about credit cards, not necessarily how I’d explain if the credit card metaphor wasn’t in common use.
And, of course, there’s lots more to say, e.g. about inflation. But a few quick ideas is all many people can absorb quick. So “ask the questions you’d ask yourself when taking out a credit card”.
As equally as the word ‘magic’ makes people think there’s trickery going on, so the phrase ‘credit card’ brings up images of debt that are unhelpful. Better to try as much as possible to trash the whole ‘credit card’ imagery and ‘maxing out’.
The simple idea that the government ‘owns the printing press for our money; and can make as much as they need’ seems an easy image (along with a demo using a paper – fiat – bank note, if talking face to face). Then deal with the meme that the more-intelligent listener will have learned: ‘That will just cause inflation’. Someone with that level of understanding should be open to a bit of re-education on money circulation; and maybe even a wider discussion of multipliers?!
I tend to agree
No doubt you’ll have seen the profile of the person behind Labour’s manifesto in The Guardian this morning (I just went back to check his name and now can’t find the article: his surname was Athwall). Anyway, an ex-Treasury civil servant and an economics graduate from Cambridge, so no wonder there’s nothing of substance in the manifesto, or indeed any discussion of how government might actually fund our way out of the mess this country’s in.
Read it
I agree
@ Ivan Horrocks. I fail to see the point of the Guardian. It’s editorial team like the majority of journalists, politicians and voters don’t even know what a fiat currency is and its implications. This appears to be the case world wide and why it’s very doubtful global warming will be successfully tackled. Sadly a Modern Monetary Theorist, the Swedish economist Knut Wicksell, explained the nature of a fiat currency over 125 years ago in his book “Interest and Prices” published in German and available in English 78 years ago. Now in the 21st century we are quite literally driving blind!
https://larspsyll.wordpress.com/2024/06/07/mmt-the-key-insights-3/
https://www.britannica.com/money/Knut-Wicksell
Cambridges teaches neoclassical neoliberalism.
The last 40 years demonstrates that neoliberal predatory capitalism has failed.
Further evidence of failure is the global financial crash in 2008, and Liz Truss’s tenure a few years ago.
The only “success” are for those already with money, who have seen their wealth and wealth inequality increase.
“Rethinking Economics is a global network of students and organisers fighting for a new way of teaching and practising economics so that it truly helps us deal with the real-world challenges we all face today like climate collapse and inequality.” — https://www.rethinkeconomics.org/
Debit BoE Money Created Account, credit BoE UK Investment account
Credit BoE Money created account, debit Government cash account
Debit NHS/UK building equipemt account, credit Government cash account
Debit NHS/uk building/ equipment account, credit NHS/UK cash account
then in the consolidated account-
Debit on NHS/UK asset account equals credit on BoE UK Investment account..
It works for the private sector.
Absolutely true. I don’t think anyone can deny this basic truth – nobody I know does (or at least does not dare to in my presence).
Of course, what follows is a discussion about the consequences of this truth… which is where it gets interesting (and a bit complicated).
The reason that most wealthy people deny the existence of the Magic Money Tree is not that they don’t believe.. but that they know that it is most likely to lead to policies that redistribute of wealth away from them. As a result, the rich will go to any length to try and persuade us that black is white.
@ Clive Parry. Absolutely correct which is why the rich need the Kier Starmer’s, Tony Blair’s and Gordon Brown’s of this world and a lying mainstream media to reinforce their nonsense!
When arguing with friends I use this example.
https://www.gov.uk/government/news/nhs-to-benefit-from-13-4-billion-debt-write-off
Where did the money come from?
Perhaps here https://www.bankofengland.co.uk/news/2020/april/hmt-and-boe-announce-temporary-extension-to-ways-and-means-facility
Which begs the question, are politicians misinformed, or do they have an ulterior motive?
I suspect that many politicians do not know better.
Others deliberately misinform that only taxes fund spending, because it gives them an excuse not to spend on public services. Defunding public services (NHS, welfare, councils) means that public service slowly start to break, which gives politicians a reason to transfer services to the private sector, and to funnel off profits.
Capitalism prefers the private sector to the public sector, claiming that it runs more efficiently.
This may be so for the shareholders and executives who profit quite nicely, but the public and the country get a worse service (better services cost money and profits), and in some cases, the environment suffers (raw sewage in rivers)
Perhaps the problem is that voters don’t like the idea of politicians with unlimited power? Linking Government expenditure to the tax it raises gives people a sense that they are in some way in control. (“If the Government raises taxes too much we’ll find a way not to pax them…”)
Maybe the solution is to emphasise that there are limits, imposed by inflation targets, to make voters aware that even with MMT the Government has constraints it must respect.
Yep, and I think people would accept Labour saying “we will exercise caution until the inflation constraint eases” – rather than declaring “iron clad fiscal rules which will be stuck to without exception” (which isn’t even possible).
But that would threaten the neoliberal order, which it took decades to impose after the post war compromise. There’d be an all out attack on any party – especially on the character of its leader – threatening it. And it’d probably work thanks to FPTP.
That said, LINO has conceded way more ground than necessary, made a rod for its own back, and people like Reeves and Streeting do appear to be true neoliberal believers.
I despair.
Timely (and unexpected) intervention here from today’s Guardian https://www.theguardian.com/business/article/2024/jun/13/why-government-debt-is-not-like-household-borrowing
@ Bill Kruse. Still a dumb article!
“A government has an income, mainly from tax receipts, but unlike a household, it can raise many billions of pounds more in the short term by increasing taxes.”
Never bothers to think where the money might come from to pay taxes! There is no Magic Money Tree but there is magic stupidity courtesy of Neoliberal ideology!
If I had the chance to question politicians about this, I would ask where will the new Sterling come from to bring about the growth in the economy that you keep saying you want, let alone allowing you to “pay down the national debt”?
According to ‘The Starmer Project’, in 2021 SKS needed some background tuition in economics, and perhaps surprisingly, chose Lord Falconer, a Blairite ally, but a lawyer and most definitely not a specialist economist, for some introductory seminars in Labour’s approach to economics.
One can only speculate on the actual benefits from that learning process in which Starmer engaged with Charlie, Tony Blair’s erstwhile flatmate and justice specialist, whose only possible connection with any economics might have been as Minister for Housing, Planning and Regeneration.
In the New Statesman 13/06 George Easton mentions Starmer’s senior advisor Peter Hyman who is using ideas from the economist Marianna Mazzucato.
She supports MMT.
I suspect the indirect link to Mariana Mazzucato is mainly on the ‘mission economy’ idea; not monetary theory.
So do I…
If he was inspired by MM’s mission-oriented economy, he didn’t understand it. Only a couple of the Labour so-called “missions” are actually something like missions (and even then …). The first displays a dismaying confusion between a mission and an enabling strategy.
As to whether MM actually supports MMT is a little unclear to me. She has certainly hosted Stephanie Kelton at the IIPP with plenty of positivity, and the IIPP working paper I linked to in another comment here has some co-authors who are MMT-ers. However, I don’t detect the MMT lens in what she says and writes.
I am not convinced she really gets it
Not really
I suggest a better formulation is to say: There is a money tree, but it’s not magic. That encapsulates the essential truth not recognised by most economists, politicians, and others – but recognises that there are constraints on continuous monetary expansion which need attention and careful management.
Thanks
How can you say this country has true democracy when hardly anybody understands what a fiat currency is all about? MMT’s so called Magic Money Tree is actually “simply wanting to make sure money comes from somewhere and goes somewhere.” What’s so subversive about that – describing a GIRO or money circulation system? See page 15 in following article:-
https://www.ipe-berlin.org/fileadmin/institut-ipe/Dokumente/Working_Papers/IPE_WP_92.pdf
An awful lot of people in this country need to wake up and start thinking for themselves instead of acting like docile serfs accepting the views of the rich.
This working paper from the IIPP at UCL is excellent:
https://www.dropbox.com/scl/fi/163lc2vl89gulrv24ck6p/the_self-financing_state_an_institutional_analysis_of_government_expenditure_revenue_collection_and_debt_issuance_operations_in_the_united_kingdom.pdf
As is its much longer precursor:
https://www.dropbox.com/scl/fi/a2axdj8lbz2it99svq515/An-Accounting-Model-of-the-UK-Exchequer-Google-Docs.pdf
Forget whether there’s a Magic Money Tree there isn’t a democracy unless you understand how a fiat currency works.
Agreed. MMT is not a theory is it? It’s a description of how a fiat currency works. I agree with the previous comment, we need a rebrand for our movement. Meanwhile, I hope you enjoy some of these quotes:
“The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government’s greatest creative opportunity. By the adoption of these principles… the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity.”
– Abraham Lincoln
“Money has no motherland; financiers are without patriotism and without decency: their sole object is gain.”
– Napoleon Bonaparte
“The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight-of-hand that was ever invented. Banking was conceived in inequity and born in sin… But if you want to continue to be slaves of the bankers and pay the cost of your own slavery, then let the bankers continue to create money and control credit .”
– Josiah Stamp, former Director, Bank of England
“The issuing power should be taken from the banks and restored to the people to whom it properly belongs [otherwise]…the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless”
– Thomas Jefferson
“Whosoever controls the volume of money in any country is absolute master of all industry and commerce… And when you realise that the entire system is very easily controlled, one way or another, by a few powerful men at the top, you will not have to be told how periods of inflation and depression originate.”
– James Garfield (U.S. President in 1881)