Monday, 13 January 2014
Martin Wolf supports Positive Money – sort of.
Positive Money literature often quotes this passage by Martin Wolf: “The essence of the contemporary monetary system is creation of money, out of nothing, by private banks’ often foolish lending.”
But there is another Martin Wolf article where he expands on that point. The article is entitled “The case for helicopter money” and it’s reproduced here by Gonzalo Raffo.
Some quotes from the article:
“Why should state-created currency be predominantly employed to back the money created by banks as a by-product of often irresponsible lending?” Why indeed? Would some representative of the City of London or Wall Street care to answer? Or can some politician responsible for bank regulation answer?
Of course they won’t answer because they can’t. Private banks favour private money creation because they profit from it. As to politicians, either they’re clueless on this issue, or like banksters, they also “profit from it”. That is, if you’re a politician looking to have someone pay your election expenses, some bankster will be only too happy to oblige: as long as you vote the right way on sundry banking issues.
Martin Wolf also tumbles to another point. As he puts it, “What makes this policy so powerful is the combination of fiscal spending with monetary expansion…”. That is, if a deficit is funded by new money, that by its very nature involves combining fiscal and monetary policy.
And he tumbles to something else. As he puts it, “This would require discussions between the ministry of finance and the independent central bank. So be it.”
However, Positive Money has thought thru that point much more thoroughly. As PM has explained over and over, cooperation between monetary and fiscal authorities would certainly be needed. In fact PM advocates the setting up of an independent committee specifically tasked with determining the amount of new money to be spent into the economy.
That is, under PM’s system the amount of new money to be spent into the economy (aka stimulus) would be determined by that committee. In contrast, strictly political decisions like what proportion of GDP was allocated to public spending, and how that was split between education, defence, etc would be left entirely with the electorate and politicians.