Monday, 31 October 2011

Why can’t everyone have a printing press?

Quotes from “Creating New Money”, by Joseph Huber and James Robertson.

“The cost to the state of issuing new money is only the cost of
producing banknotes and coins. The cost to the banks of issuing new money is virtually zero. The state receives public revenues from issuing cash, but banks make private profits. The benefits of the money system are therefore being captured by the financial services industry rather than shared democratically.” (p. iii)

“Allowing banks to create new money out of nothing enables them to cream off a special profit. They lend the money to their customers at the full rate of interest, without having to pay any interest on it themselves.” (p. 31)


Afterthought (1st Nov). More information about James Robertson here. (Hat tip to Gillian Swanson).



  1. That's a warped way of looking at it designed to illicit an emotional response. A very poor argument by the authors I'd say.

    Financial organisations are explicitly receiving a licence to create money at 0% interest - as a matter of policy (In the UK the charge is lost interest on the cash ratio deposits banks have to hold at the Bank of England - at the moment 0.5% on 0.11% of loans outstanding in excess of £500 million)

    That is no different to the central bank issuing the money at 0% and requiring it to be held in bailment.

    And of course the cost of the state issuing new money has nothing to do with printing anything. It's just a computer credit. So it costs nothing at all.

    For me the best argument for the state eliminating Credit Money and requiring that it is all Fiat is that the banks will stop lobbying the government to cut its spending of Fiat money. (Since it competes with Credit money).

  2. Neil, Yes, the language is a bit emotive / political. But this is all very much politics: there are allegedly ten bank funded lobbyists for every member of Congress (not sure about the equivalent figures for the UK). If commercial banks want to buy politicians, then I think those of us who want to see these banks cut down to size are entitled to use every dirty trick in the book as well.

    The above quotes from Huber and Robertson do not of course do justice to their full arguments: the quotes are just extracts from a book consisting of several tens of thousands of words, at a guess.

    I can’t summarise their full argument here, but roughly speaking they argue that it costs commercial banks nothing to create and lend out money. And that activity undercuts what you might call “genuine savers”: that is people who have forgone consumption so as to enable borrowers to borrow and consume resources. Banks, of course, help themselves to the interest which genuine savers would have charged.

    Plus they argue (and I agree with them) that a better system would involve having just the state / central bank create money. Commercial banks would still be able to attract deposits and lend on those deposits, but each pound lent out would be a pound that some saver had explicitly decided to save, plus savers would never be undercut by money produced from thin air by commercial banks.

  3. "that is people who have forgone consumption so as to enable borrowers to borrow and consume resources"

    I think that conceptually and directionally it is wrong.

    Lets forget about emotions for a bit and think economics. We do not want to have investments as inventory. We DO want to have investments as creation of new wealth. But we do not want to wait until we have enough savers (inventories) to turn up real resources for investments waiting in the line to be realized. We want to have a more dynamic system. Unfortunately such system implies some degree of crowding out of consumption and replacing it with investment. And that is fundamentally what private credit achieves. It drives prices up, consumption out and investments in. The state/central bank shall NOT do it because the private sector can decide better on profitable short to medium term investment opportunities. What the state shall do is it regulate the volume and steer the direction of private investments (and not outright speculation) according to the public purpose which is pretty much what MMT says.

  4. What compelling reasons are there for credit money to be created by "private" banking interests, as opposed to treating banking as a state provided service?

    Pooling of savings to earn interest would be accomplished in either model. Earning interest on savings at a rate greater than GDP growth will always increase income inequality over several generations.

  5. Because private credit puts money at risk. This reason alone is enough to allow it. The questions is only to ensure that it puts *right* money at risk.

  6. Игры рынка

    you said:Because private credit puts money at risk

    It is at risk whether initiated by a "publicly" or "privately" owned institution. All institutions are managed by "professional" managers, and shareholders have little say in the day to day operations of the institution. So it really does not matter as to who owns the institution.

    In India, nationalized and private banks coexist, and are equally profitable. There is no difference in the products that they offer! In one case the profits go back to the Government, and in the other, they go to shareholders. Profits to the government work like a tax, and reduce inflation, in the other case, the profits are either spent or saved, and can potentially be either inflationary, or they could lead to increasing inequality.

  7. Игры рынка,

    You favour having “private credit” crowd out consumption in favour of investment. I’m not persuaded of the merits of this by the fact that you apply the word “dynamic” to this process. I suggest the optimum amount of investment is the amount at which the marginal benefits or profit made from investment equals the marginal “pain” or disutility of consumption forgone in order to fund those investments. That is pretty standard economics.

    The latter “equalisation at the margin” would occur where there is a genuine free market where lenders and borrowers meet. But private money creation enables loans at below the rate that a genuine saver would have charged.

    The result is that private money creation certainly results in more investment than would otherwise be the case. Trouble is that it results in investments which yield a sub commercial or sub free market return on capital, and we derive no benefit from that. Perhaps this phenomenon partly explains NINJA mortgages.

  8. Ralph, your argument and standard economics assume that every investment can be calculated a priori. It is wrong because the world not work like this. Every investment is a trial and error. There is no equalisation because it is simply impossible.

    More fundamentally, the idea that there is a rate of interest which equates consumption and investment is also wrong. Because high interest rate impedes both consumption and investment. Savers do not demand anything. Saving is income not spent. You can not demand anything with it. You can politically demand income from savings but there is no economic reason whatsoever to receive positive income from savings.

    NINJA phenomenon came from the fact that somebody risked someone's else money and nobody had balls to stop it. It has nothing to do with fractional reserve banking.

  9. Ralph,

    You said:But private money creation enables loans at below the rate that a genuine saver would have charged.

    Why should a saver be entitled to a rent on what is basically deferred consumption? If I forgo eating a slice of bread today, why should I expect that slice of bread to become two slices of bread tomorrow? If I use that slice of bread to feed my hungry toddler, why should I expect him/her to return to me 2 slices tomorrow? If I use that slice of bread to feed a hungry traveler should I expect him to return to me 2 slices of bread when he passes by the next time?

    However savings can also be viewed as saved labor. If I was to "invest" my saved labor in an enterprise, with somebody else who only contributes his labor, should my saved labor be valued more than his contributed labor in dividing out the returns from the enterprise? But that still would not entitle me to a time dependent rental on my saved labor.

    These are basic questions about money, saving, capital, investment that are very often not discussed and understood. Just because a time value of money can be imputed, does not mean that there is an entitlement to that value.

  10. Clonal,

    You ask why “should a saver be entitled to a rent on deferred consumption?”. I’m not saying that savers are AUTOMATICALLY entitled to rent. But if X chooses to save, and Y wants to make use of those savings and is prepared to pay for the privilege, I see no reason why they cannot come to whatever mutually advantageous deal they want. They can do that face to face, or they can do it via a bank. In contrast, there are cases where the “lender” has to pay the “borrower” for looking after the former’s savings: e.g. people who their valuables in safe deposit boxes.

    Игры рынка,

    Re your first paragraph, obviously my argument about equalising the costs and benefits of saving and investment at the margin is a gross over-simplification of the real world. But same applies to every idea in economics, e.g. simple supply / demand schedules or graphs. But that is not a reason to reject those over-simple ideas. Economics, like some other subjects, is all about trying to work out the best theoretical set up, and then trying to get real world as near the ideal as possible.

    Re your claim that high interest rates impede consumption, that is very debatable. I realise that central bankers THINK they have an influence by adjusting interest rates. However I poured a load of cold water on this idea, as has Prof.R.A.Werner. See respectively:

    And even if high interest rates do reduce consumption, that’s not a problem. If interest rates rise and aggregate demand falls as a result, government can just create and spend more money into the economy so as to bring AD back up again.


Post a comment.