Everyone but the national government of a country can run out of money. They can't because they make the stuff. So, in that case, why are our politicians obsessed with running out of money when they should instead be obsessed with unemployment and services that are not good enough?
The audio version of this video is here:
The transcript is:
There can never be a shortage of money. It is quite impossible for our government to ever run out of this stuff, which is what many of us think money is. But of course, it isn't really, because most of our money is electronic.
But the simple fact is that, as I've just shown you, money can be represented by £20 notes. And indeed, all money could, in theory, be represented by £20 notes if we really wanted it to be. And the answer to the question of could we run out of it is, obviously, no, because the government could always chuck another sheet of paper into the machine, or polymer into the machine, as it now is, and produce a few more. In other words, the government can never run out of money.
All the debate that we have about the fact that the government has a black hole and all the debate that we have about that there is a shortage of money to fund government activity; all of that discussion is nonsense because the government makes all the money that we have, and as I've explained on this video series time and again, every time the government comes to make a payment, the Bank of England creates the new money that is required for the government to spend by extending an overdraft to the government, and new money is made as a result.
So, to claim that we can run out of money is nonsense. But there is a real constraint in our economy. And that is something quite different. It is absolutely true that we can run out of things to buy. And that is what we should be worrying about when it comes to economic management. Because if there are too many of these £20 notes chasing too few things, then there is a real problem because the consequence is inflation.
Now, that's why, in modern monetary theory, of which I am an exponent, the focus on inflation management is entirely about balancing out this equation between things to buy and money available to be spent. But things to buy comes first, and the government should spend until there are no things left to buy.
Now, at that point, we have, of course, maximized the opportunity within the economy.
We will have created full employment.
We will have used resources to best effect.
We will be living, as the saying goes, our best life. Not something I normally say, but on this occasion I think it's appropriate. Because that should be the economic goal of our government.
Let's put everything to use.
Let's have people at work.
Let's give them the best pay that they can be paid for what they're doing, and then we will end up with a happy society.
But instead, we don't do that.
We don't try to put people to work.
We don't try to use resources to best effect, taking into consideration climate change, of course.
Instead, we obsess about money. And the consequence is that we put up with unemployment, because we say, “Oh, we need some unemployed because that will keep the value of money under control.”
That's what the Bank of England think, by the way. They believe the unemployed people of the country are there to provide the buffer against inflation. It's as if they are economic cannon fodder, to be left on the sidelines, out of work, abandoned, forlorn, hopeless, unaware of where their next hope will come from because Andrew Bailey and the Bank of England need someone to pick up the slack in the economy to ensure that they don't make mistakes with regard to their inflation control.
It's a pretty sickening process. It's not what the government should be doing.
The government should instead be aiming for full employment and it should be telling the Bank of England that its job is to deliver full employment. And if it can't, then it's up to the government to create the jobs in question.
The jobs in question could be doing all sorts of things. We all know that there is a backlog of maintenance of things to do in our society, many of which could be done by people with relatively low skill, who could be put to work in the short term, to ensure that we get some benefit in exchange for employing them. Because it is better to employ someone than to pay to sit doing nothing. Isn't that glaringly obvious?
It would also be better to pay them a basic income to not work than to pay them the absolute minimum possible on benefits to have no chance whatsoever. Because then, if they were paid a basic income, they would at least be spending into the economy and keeping other people in employment.
But we've got the worst possible world. Because the Bank of England is so obsessed about not producing this stuff - £20 notes - but trying to preserve its value, it forgets that value is determined by what we have and not by the existence of a quantity of money, which is in itself meaningless unless there is something to spend it on.
The something to spend it on is what matters in our economy, but we have ended up with economics which is obsessed about money. And there is, and never will be, a shortage of these £20 notes. We can always create more of them.
But the art of economic management is in making sure that the resources we have available to us, people, physical resources, the renewable resources that we can enjoy, all of those are used to best effect. That's what economics is really about, and money is merely a sideshow. But our politicians and our economists have forgotten that, and we're all paying a heavy price for it.
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Tanks again!
Might the Bank of England, and its witting and unwitting accomplices, be following an unstated policy of narrow financial capitalism which views/treats the contexts of the lives of many citizens’, and those of their children, as externalities or matters of minimal account and so obstructs spending on needed infrastructures of both goods and services forms?
In other words, might it be actively seeking to create and maintain a theoretical simulation of our society to the cost of the actual society?
“In theory, practice and theory are the same. In practice, they are not.”
(Yogi Berra)
Excellent.
I’ve said this often and I’ll say it again – that you cannot tell this fundamental truth often enough.
My view on the social security state of the Attlee era was that all they were doing was using the basis of a war economy to fight societal wars in education, health, poverty, worklessness and housing.
I’ve never heard of a sovereign state saying that it cannot fight a war because it will run out of money. The money is always found to kill in defence of the realm.
In WW2, the only reason we were in hock to the U.S. (or ‘Yanks’ as Tampa Bay says) was because we did not have the capacity to produce everything we needed to meet our obligations to home defence and and our allies in a global world war. It was not because we ‘ran out of money’ (or was it?). Showing once again that money is not the only thing you need – you need capacity in the economy – which springs out of investment. The inter war period was effectively a period of austerity – and maybe the consequences of our inability to deal with Hitler earlier on – a lesson from history that has been lost to the neo-liberal new world.
Keep at it Richard.
I will
And this one does bear repetition
5,000 new followers on YouTube in the last month needed to hear it
In 1941 we ran out of foreign currency reserves and the state , as I recall-haven’t checked- took control of privately owned assets which were sold various buyers like Argentina but mainly the US. As that dried up, FDR instituted Lend-Lease which kept people employed. He did recognise the threat Hitler posed but had electioneered in 1940 on the basis that no American biy would be sent to fight in Europe. So it suited him to keep us in the fight and we can be glad of that.
Hitler solved his problem a few days after Pearl Harbor by his bonkers decision to declare war on the USA.
Further demonstrating this truth, the documentary film “FINDING THE MONEY” is now on general release worldwide, and can be streamed for a modest payment.
“An intrepid group of economists is on a mission to flip our understanding of the national debt – and the nature of money – upside down. FINDING THE MONEY follows American economist Stephanie Kelton on a journey through Modern Money Theory or “MMT”, as she works to change our perspective on how countries around the world can tackle the biggest challenges of the 21st century: from climate change to inequality.”
https://findingthemoney.vhx.tv/
Recommended.
Thanks
& at no point, in any of what passes for the Uk media is this ever discussed. Furthermore, no politician from any party (Tories, Tory 2, Libdems, Greens etc etc) is ever publicly engaged with reference to the points made. There is a deafening silence on money availability – but plenty of discussion on how little money the state has – must tighten belts etc. (& any attempt to discuss: “we can always print money”, is met with facile bullshit statements encompassing 1920s Germany, Zimbabwe and Venezuela). The neocon-artists have won.
The stock response citing Weimar and ZImbabwe is annoying. I never bother to engage with this assertion, because it’s so obviously wrongheaded. But also because I don’t have the words to counter it. Is there a short and simple rejoinder to this fake news?
I have added this to the list of videos to make
Sadly. nothing is simple about the German hyperinflation….
Germany suspended the gold standard in 1914, deciding to pay the costs of the war from debt, so had 156 billion marks owing after the war plus 132 bn gold / paper marks reparations on top of that, with the 50bn gold marks of that being the major burden, so were very heavily indebted indeed.
Havenstein, then Reichsbank head honcho, bought foreign currency without consideration in creating exchange inflation, (and did so) allegedly in an attempt to settle reparations in foreign currency, but there seems to have been full foreknowledge within the German bankster collective that any fall in the value of the mark, as during the eventual hyperinflation, would reduce, even wipe out the value of the debts owed, so there was definitely deliberate intent to reduce the reparations burden by the Germans through manipulating inflation.
The Weimar Germans had known full well they’d have to restructure their finance system and currency, post 1919, but put it off, then allowing, even encouraging the inflation, intentionally – and it mostly worked with the 2-3 yr pain of the hyper inflation having the desired effect, in shredding the value of the reparations, though eventually, post 1924 during the necessary revaluation, there were debt provisions made under the new currency which lasted til 1930 ish.
The Weimar government had all sorts of difficulties in raising taxes post 1918, for lots or reasons and that was another undesirable complication.
This was not a simple set of events as the French and Belgians then invaded the Ruhr, to sequester coal etc., as compensation for unpaid reparations. The German workers were told to resist passively, but then were paid in paper marks, which just made the inflation much worse.
There are quite a few different interpretations of events, so my version is far from definitive, but I think that the Germans deliberately created inflation, were caught out by events, especially the problems with the invasion of the Ruhr, and were then unable to control it, and just hoped for the best final outcome.
I find that there are so many really relevant lessons from post WW1 Europe for us now, and it is a fascinating period globally, though Weimar has a special fascination for me.
TBH I think Europe is sliding into neo fascism now, mostly as a result of neoliberalism, hence the importance of the 1919-1939 period.
Agree entirely Richard but 45 years of neoliberal propagander from MSM and just about every politician there has been means its going to be hard to cut through although the reach this blog and your videos are getting we may be at the start of a change of thinking.
Regarding the language we use re government “debt” etc I dont like the word “overdraft” even though that is what it is. I think it just gets people thinking in household economics mode again, as people have to pay off their personal overdrafts.
Perhaps the bank of England adds money to the “government national investment account” would be better, or something along those lines.
People may then see the money like that that they use to add an extension or a new kitchen to their house and can therefore see it’s true value to the economy.
Just a thought.
Noted….
I entirely agree, Pat. Its just a record of the amount of money issued less the amount withdrawn (taxed back). The government doesn’t “extend its overdraft” it just instructs the Bank of England to issue more currency as authorised by Parliament.
The term refers to a balance
It is entirely appropriate
Please don’t count angels on pinheads
It is boring and unnecessary
An aspect of the history of trade unionism I find it useful to remember is how central workers having allotments, or even large gardens was (you can read about this in, for example, Joseph Arch’s autobiography, From Ploughshares to Parliament). Why? Because bosses oppose anything that might strengthen the hand of workers in negotiations – such as ways to feed their families other than wage-slavery. The wealthy and privileged, the ‘Establishment’, oppose UBI for the same reason.
Very good point
On a similar note, I see that Boeing, in the US, is said to be threatening workers who are talking about strike action, with cutting their job related health insurance. Another reason to oppose insurance based health care. Job related health insurance is a complex minefield, that gives more power to the employer, and leaves the employee easier to control.
Update: Boeing revoked the company-sponsored healthcare benefits of about 33,000 striking workers starting Tuesday.
https://www.nakedcapitalism.com/2024/10/why-we-need-medicare-for-all-boeing-revokes-health-benefits-for-striking-workers.html
I have to laugh darkly at this.
The way Boeing makes aircraft these days means that you need to be heavily insured when you fly in one of the recently made crates.
Boeing kills people with its products and gets away with murder.
I’d love to see passengers refusing to fly in their products. A Boeing user strike is what we need.
A once great company brought low by modern capitalism. Mike Parr talks about Neo-liberalism winning and he is right.
But will it win forever?
This is an extremely welcome and powerful post and the immorality and everyday cruelty of neoliberalism needs to be called out, time and again.
I do not believe we call out the evils of monetary policy often or loudly enough in how people are regarded and treated, and do not apologise for the following rant.
Apart from the dehumanising “machine that demands a sacrifice”, this really is the actual structure of our developed economy, and is accepted, even lauded, practice integral to the technocratic monetarism of the BoE for one, and Treasury for another. It almost makes you wish for a revolution.
We know Keynes hung many of his aggregate demand notions on the peg of full employment, and had an underlying advocacy of equality, though mostly for reasons of social and economic stability. For much of the postwar Keynesian period we had 2% unemployment as the target.
As far as UK neoliberal monetarism goes, we now have almost 30% of those of working age who are economically inactive, when combining unemployment with economically activity stats.
Then we have those underemployed in terms of skills and abilities, and part time employed who would take on further work, were it available. The ONS gives us a 7% guesstimate of underemployment. I’d suggest that is almost certainly a significant underestimate, and the total figure for unemployment, non participation, and underemployment is close to 40% of the entire working age population.
That is very deliberate restriction of opportunity and freedom. There is no doubt that the chosen weapon of control by capitalists and the financial technocracy is employment, with the threat of unemployment or insecure employment obligating compliance with the system.
Add to this the alienation built into many modern employment markets and practices, and the exploitation inbuilt into the ‘gig’ economy.
The stories of Amazon warehouse workers and delivery drivers wearing diapers and carrying pee bottles, as they are not permitted toilet breaks, are not apochryphal.
The account of the Sports Direct worker who gave birth in a warehouse toilet and cut the umbilical cord with a Stanley knife ‘because she was afraid of missing her shift’ was widely reported during the investigation into Shirebrook ‘Sports Direct’ employment practices.
Government has conspicuously failed to regulate employment, so that portfolio workers have been largely unprotected, and the ‘gig’ economy has been facilitated by the lack of employment protection.
Amartya Sen, one of the very few empathetic economist / political philosophers, has a pretty uncompromising view of unemployment.
“the rejection of the freedom to participate in the labour market is one of the ways of keeping people in bondage and captivity”.
“unemployment is not merely a deficiency of income….. it is also a source of far reaching debilitating effects on individual freedom, initiative and skills..(and) contributes to social exclusion..”
Generously, Sen uses the word ‘unfreedom’ to describe what I label oppression, and neoliberalist monetary policies seem to have reinforced and embedded the 19thC anti-worker mindset in the consciousness of current Tory and Reform free marketeers, for whom ‘laissez faire” applies only to owner/managers. Workers have no corresponding freedom to do as they wish.
Deprivation of the basic freedom to engage in employment is a political failure of immense significance and it cannot but be repressive when people are prevented from participating in the fundamental choice, in a totally transactional economy, of contracting their labour.
No wonder then that the abandoned regions of the UK are so disillusioned as to fall into the far right trap of racist bitterness and ‘want ther country bak’.
That absolute disempowerment is the every day hegemony of deliberate economic and social control, and is a pre-condition for the rise of fascism. Check out the current rise of the far right electorally.
Basically, we cannot remotely claim to be a ‘developed’ or civilised society if we have to permanently oppress some groups, and pursue modern macroeconomic practices that deliberately deny opportunities for employment, to allegedly control the artifice of inflation.
Sen also criticises the clunky mechanistic economic interpretation of regarding “human capital” only in terms of augmenting productive potential, entirely ignoring “the substantive freedom of people to lead the lives they have reason to value, and to enhance the real choices they have.”
Sen’s empathetic views see human capabilities in a far wider context than the merely transactional.
The technocrats’ security blanket of moral disengagement, in current bankster and government political practice, is even more equivocal than the ‘just following orders’ of the camp guard.
We cannot claim to be a civilised society until we satisfy Bandura’s conditions….
“To function humanely, societies must establish social systems that uphold compassion and curb cruelty. Regardless of whether social practices are carried out individually, organisationally, or institutionally, it should be made difficult for people to delete humanity from their actions.”
We seem to demand the opposite.
I agree with you on under-employment
This is bigger than estimated – many of the self-employed also fall into this category.
As I understand it government debt is some ones money which has not yet been taxed. I assume this is mainly peoples saving, including private pensions. If this was understood the the idea of reducing the debt might not be a good idea.
A really important point
Have you had confirmation from the BoE and Treasury that government spending is essentially funded by an overdraft on the consolidated fund? You should try and get this in writing from them for it to be given the credibility that you claim.
When their policy is based on denying this why will they agree to such a request?
And why should that stop me speaking truth to power?
It’s for you to decide who to believe
@ Mat Rouge
The authors of this study
https://gimms.org.uk/2021/02/21/an-accounting-model-of-the-uk-exchequer/
repeatedly requested confirmation. Initial responses were directions to literature which didn’t answer the question, and eventually to say it is “outwith the public interest” to go into more detail.
Thanks
As for challenging the “common sense” arguments about Britain “running out of money” or struggling with a “huge national debt”, I have found it useful to ask just who we owe all this money to. I mean, their names and their addresses. Promise not to go round and break their windows if their addresses are revealed. One innovation that occurs to me is to ask which Court will declare Britain bankrupt and what approach the bailiffs will take. I suggest that you take sandwiches and a flask of tea with you as you may have to wait for a long time for an answer. To be honest, after a period of confused, blank looks ,there is often a bit of bluster and the conversation ends as if it’s all my fault for asking silly questions. But I think that I ask “common sense” questions.
I have answered the first several times
The second is there is none
Last night at UCL (London) I attended a screening of Finding the Money, a recent US-made documentary film precisely about “government debt” and how MMT destroys the myths. Stephanie Kelton is the lead commentator, but other big names in MMT also appear. For a documentary, it’s a bit long (2 hours) but well worth sitting through as it answers most. if not all, of the questions people raise whenever MMT is mentioned. The sceening was preceded and followed by a panel discussion featuring Zack Polanski, Josh Ryan Collins, Patricia Pino and was chaired by William Thomson. References (2) were made to one Richard Murphy. It seems that the film will be widely shown across the UK in the next few weeks. Well worth a look.
I will be over the weekend
Thanks
Zimbabwe had its own currency and they ran out of money.
As did the Weimar Republic and Hungary.
It’s all about inflation and the need to purchase foreign currencies to spend on imported goods.
They did nit run out of money
They ran out of people who would accept their money – but you utterly ignore sanctions, reparations and collapsing oil prices to come to your conclusions, which really does make it clear you are clutching at ridiculous straws.
I will be doing a video on this very soon.
You keep missing the fundamental point – it doesn’t matter how many £20 notes there are, it matters what you can get with a £20 note.
So the fact that the government can print as many £20 notes as it likes is irrelevant, if the value of what they will buy keeps reducing.
In a global economy with so much need to purchase goods and services externally, maintaining the value of the currency is essential, which therefore significantly constrains the ability to print £20 notes.
So, as has always been the case, the government can effectively run out of money and hence why MMT is flawed, as ultimately government spending is constrained by taxation in order to control inflation.
So, as much as you’d like to claim that MMT magically releases money for the government to spend, it simply doesn’t.
You keep missing the fundamental point that everything I write is about using tax to control inflation when using interest rates to do so does not work.
My key point is you can spend until there is nothing more to buy. Then you stop.
You ignore that.
Is that deliberate or have you not read a word I have written? I am nit ignoring inflation risk. It is at the heart of what I am saying.
And so MMT is effectively no different than conventional economics – spending is limited by the ability to tax.
And the fact that (theoretically) the government can print unlimited funds is meaningless..
Wring. Spending is limited by what we can do. You ate completely wrong and clearly have not a clue what you are talking about.