Most people in the UK still believe in the power of royalty — and the power of the honours system. We accept that a knighthood is created from nothing with a tap of the King's sword. Yet many refuse to accept that the government creates money in exactly the same way: by tapping a few keys on a keyboard.
In this video, I explain why knighthoods and money share the same foundations: state authority, public trust, and responsible stewardship.
Money is not limited. Knighthoods are not limited. Both can be over-issued. Both can be under-issued. And both are destroyed when they're no longer needed.
If you believe in the power to create honours, you already believe in the power to create money — even if you've been told otherwise.
This is the audio version:
This is the transcript:
Most people in the UK still believe in the power of royalty, and they still believe in the social hierarchy 📍 that is created by our honours system. In other words, they believe in knighthoods and the power of royalty to create new knights and dames of the UK.
But I've got a point to make. If you believe that the King can create new knights by tapping a sword on someone's shoulder, then you have no choice but to believe that using the same power, the government can create money by tapping a few keys on a computer keyboard.
The fact is that money is like knighthoods. Both are created out of nothing.
Both depend on the authority of the state.
Both can lose value if overused.
And both tell us a great deal about power and trust.
Everyone knows that only the King can make a knight. We do, of course, recognise that advisors might suggest names, and politics has a part in all of this. We also know that HM Revenue and Customs might sometimes object to somebody being elevated to whatever you might call the knighthood. But the point is, in the end, it's the King's decision as to whether to knight someone or not. And a sword touches the shoulder, and a knight is made.
And what's important to understand is that the knighthood was created from nothing. Before the moment that the sword hits the shoulder, there was no stock of knights waiting in reserve. There was no limit to the number of titles that could be handed out. The honour only exists because the King has chosen that it should. That choice, that act, and the tapping on the shoulder creates reality in itself; the knight is a product of trust in authority.
And this has to be done with care. Managing the currency of honour is something that the King has to consider. If too many people are knighted, the title would lose meaning. If everybody were a lord or a knight or a dame, then there would be nothing left for anybody to aspire to. Honour would be cheapened; the system would become disrespected. So creation is limited not by supply, but by the need to preserve confidence. It is power exercised with care that creates the currency of the honour system.
And this, of course, creates a direct comparison with the money system. Money does, in fact, work in much the same way. When the government decides to spend, it doesn't check a bank balance first. It tells the Bank of England to make the payments, and with a tap on a keyboard, somebody in the Bank of England creates new money that comes into being as a consequence.
There was no stock of money waiting to be spent. It was literally that act of creation through tapping on the keyboard t hat is the modern equivalent of the tap on the shoulder by the sword that creates a knight.
Both are acts of the state that bring something into existence, and both owe their existence, whether they be the knight or the pound, to public trust. Both depend on belief that the system is legitimate, in other words, and both rely on judgment.
If government creates more money than the economy can use, its value falls; we get inflation, we know that. That's why things like modern monetary theory are so obsessed with inflation and monetary control as a consequence.
But there is a corollary. If the government creates too little money, the economy can stagnate, and that is a real fear if the entire power to create money is passed over to the private sector. So, as with knighthoods, it's not creation that is the problem; it's creating the right amount for the right purpose that is the issue with money.
And we also have to remember that there's a process of destruction involved in both cases as well. In the case of knighthoods, they disappear as a consequence of their holders dying. I'm sorry if they don't like me representing that as a process of destruction, but that's what happens. And similarly, money disappears. That happens when taxes are paid.
Taxes exist to destroy money. When tax is paid back to the government, the debt that was created to guarantee that the money was sucked out of the economy by the process of that tax payment results in the money in question literally being destroyed; it's no longer there.
And that is why both systems of knighthood and money creation are dependent upon constant renewal to keep society functioning. Without new creation, activity would slow, and without limits, value would fade.
But that still doesn't mean that there has to be a precondition that there must be money in the bank or knighthoods spare in the cupboard to create new outcomes. There has to, instead, be an informed decision that says that the action which is proposed, whether it be the tap on the shoulder to create the knight or the spending by the government to put some action into place, is appropriate and that the consequences are the ones that we want. There is no preexisting right course of action. There's only a decision to take action, and that is vital. Both are acts of sovereign authority. Both depend on trust and restraint. Both are renewed through use, and both lose worth through excess or neglect.
But what that means is that when politicians say there's no magic money tree, remember there is. It's the process of public money creation, used responsibly every day to fund society. We only pretend it doesn't exist. But let's be clear, if we pretended that knights didn't exist, we would devalue the hold of the hierarchy around royalty. Now, some people might want to do that. I have my reservations about royal power, but the point is that's the whole basis of the analogy I'm drawing. We have to decide to trust or not, and knighthoods and money show how power creates value, and that's the key point. Each is born from a decision by somebody with power, sustained by belief, and limited only by wisdom.
So the question is never "Can we afford it?" when it comes to money, but is, "Will we use our power well?" With the sword or with the keyboard, the choice is the same. The outcome we desire is something that benefits society in both cases. And the processes are so similar that if you believe in the right of the state to produce knights, you cannot avoid believing in the power of the state to produce money because you might as well search forever to find a difference.
What do you think? Do you think there's a similarity between the power to create knights and money? Do you think that both depend upon trust? Do you think that both depend upon purpose, and that there has to be an outcome that is socially useful as a consequence?
I know what I think, I've just explained it, but you let us know. There's a poll down below.
I want to thank Tom Butcher, a commentator on this blog, for the idea that sparked this video.
Poll
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Here’s another angle that should be considered in regard to how much money is allowed into and extracted from an economy and that is in a market capitalist economy a stable and viable rate of profit must be possible:-
https://bresserpereira.centrodeeconomiapolitica.org/democratic-developmentalism.pdf
Clearly such a profit rate has to be related to demand. Demand, however, is not just for consumption goods it also relates to public goods and services which assist the operation of market capitalism. Housing, health and education are examples of some of this public provision. Currently in global trade, however, some countries deliberately suppress or limit this public provision in order to achieve price point in global markets to the detriment of workers in other countries. We cannot therefore argue it’s a simple matter to run a country’s economy with both stable demand and stable profit rate. This should tell us very clearly further democratisation is required in the world to remove a dog-eat-dog situation.
All of this understanding seems to escape many of the UK’s politicians who appear to be happy to do the bidding of rich sponsors who are none too fussy where they make their profits nor to recognise the contribution of public goods and services to the economy which need to be adequately funded. Brexit was of course the poster-child for the denial of the above realities!
Thanks to you and your team for a thought provoking analogy.
Concerning trust, might such be practically increased if our “democracy” were more genuinely democratic in input, process and output?
Is it appropriate for the citizenry to trust governments which maintain a tax set up which favours the wealthy and reduces some 20/25% of the child population to chronic hunger/semi-starvation?
Might the Bank of England be more trustworthy if its contolling entities were more democratically apointed?
P.S. Ditto the B. B. C.?
Yes, in a word
Another analogy is the red blood cells in your blood, which are created, facilitate exchange, are destroyed when they have done their job and are replaced by newly created red cells.
They have to die. They are a cell without a nucleus.
A prince can mak a belted knight,
A marquis, duke, an’ a’ that;
But an honest man’s aboon his might,
Guid faith he mauna fa’ that!
For a’ that, an’ a’ that,
Their dignities, an’ a’ that,
The pith o’ sense, an’ pride o’ worth,
Are higher rank than a’ that.
🙂
That is a great analogy. Albeit knighthoods are quantised (the quantum number k is either 1 or 0) whereas money is more of a continuous quantity (you can have fractions of a penny if you wish).
Another analogy that I find useful is that money is like inches or kilograms. It is a measurement of entitlement to resources (at least, the sort of resources that can be bought, such as food and labour, and not the resources that really matter, such as love and happiness and peace and health).
Or cricket scores….
Insofar as making the point that things can be made out of nothing by just making a decision to do it, this post is useful. It is about power. If we can have knights, for goodness we can have the money we need.
The vote is an either/or choice & I voted for No1 – reliance on state/royal judgement as it’s the crucial first step in both processes without which nothing would happen. However, in the case of money creation I think the government’s actions are more important. It’s management of how that money is deployed is all important, as is evidenced by the PPI scandal during COVID. Get it right: mission accomplished, but get it wrong: fraud and wasteful lack of cohesive policies will steal much of the newly created money.
Incidentally it’s hard to believe that baroness Mone and her husband the only suspects in the
PPI Scandal. How feasible is it that they are simply the fall guys and might others closer to the political power base be protected?
I expect I’m getting it wrong again, but I see honours and money as rather different. Both may be created out of thin air, but if I’m given an honour it simply stays with me and does no-one else any good, whereas if I’m given £100 I can go out and spend it and it can circulate usefully around the economy, as it pays successive people’s wages and they spend it in turn. Am I being too literal, or just betraying my contempt for the honours system?
Both have currency. But, I think you are pushing the metaphor too far. It’s good, but not that good.
I would like to know your thoughts on the notion of Surplus Energy Economics, as laid out by Tim Morgan, Here: https://surplusenergyeconomics.wordpress.com/professional-area/
In particular the following points
– The economy as an energy system, and the role of money as claim
– Why renewables offer mitigation, not salvation
– The coming financial shock (“GFC II”) that will dwarf 2008
– Why government is breaking down in the face of falling prosperity
– Why the rate of economic deterioration might accelerate
Is he right? Does his theory trump MMT? If not, why?
Many thanks in advance,
Ed in devon,
Huge fan BTW!
I will truly to find time to take a look.
Richard,
Sorry about the late reply but I was out with my family yesterday watching Chris McCausland in Weymouth yesterday – do see him – if you have a robust sense of humour!
I discovered to your Blog via Tim Morgans so here is an introduction – within the limits of my knowledge of economics and human nature
1. he’s making (made) a very nice looking model of a Whitby class Frigate – you have something in common!
2. He was Head of Research at Tullett Prebon who basically gave him free rein to do what he wanted, this included some fascinating papers sadly now no longer available but which included a wonderful one in favour of Council Housing
3. Hes small c conservative BUT can be Big C or radical……….
4. His interest is in energy & the economy in particular the Energy Cost of Energy (EROEI) which he thinks drives the economy
5. He is also concerned by ‘credit adventurism’ in particular the massive amount of debt that has been created to keep the economy growing
6. He isnt MMT but hasnt explained where he thinks money comes from
7. He is concerned about the impact of falling prosperity
So go have a look
John
Where do I look?
To explain that the government create money, it might me useful to start with the Royal Mint printing pound notes and point out that this the same as the government spending money in to bank accounts.
It makes perfect sense. But no matter how much you hammer this point, the concept of money creation will likely remain elusive to anyone who isn’t familiar with MMT. A technical video (or series) on this topic could help your ideas reach an even broader audience.
Where the opportunity presents (on-line forms that request “title”) I usually select “Lord” – self appointed & with no penalty for use (Eurotunnel have yet to stop “Lord Parr”). By contrast, taking a DIY approach to printing money will lead to a different result.
All titles are trash/inventions/designed to intimidate & keep the status quo, by contrast money is very useful. Or perhaps I’m getting the wrong end of the stick.
Your are, but I am amused.
Back in the late 80’s (?) I was asked if I wanted to put my name forward for nomination as a peer by The Green Party
I didnt consider myself a suitable candidate so left it.
Ever so often my sons bellyache at my refusal to take up the offer as they fancy being ‘The Right Hon’ on the school register
🙂
But it is only Hon, not Rt. Hon