Martin Sandbu advocates nationalising the money supply in the Financial Times.

That’s in this article.

Nationalising the money supply, i.e. stopping private banks from creating / printing money is an idea that has been around for some time. It was advocated for example by Irving Fisher in the 1930s and has been advocated by at least four Nobel laureate economists including Milton Friedman. Plus Positive Money in the UK, Monetative in Germany and various other organisations around the world advocate the idea.

It’s good the see an article in the FT advocating the idea.

 Unfortunately Sandbu’s article contains a slight error: where he says “If private management of the money supply is a recipe for instability, the radical alternative is to nationalise the money supply. This is do-able today: central banks can offer accounts to all members of the public (or make central bank reserves available to everyone).”

That implies that it’s the fact of making central bank accounts available to all that results in the state being the monopoly creator of money. One flaw there is that in the UK, to all intents and purposes, central bank accounts have been available to all via National Savings and Investments for decades. But that clearly has not resulted in the state being the monopoly supplier of money.

NSI invests only in base money (i.e. central bank money) and government debt. But government debt, as Martin Wolf explained, is virtually the same thing as base money. So NSI is essentially the Bank of England’s agent set up for the purpose of letting anyone open an account at the central bank (i.e. the BoE). And doubtless some other countries have state run savings banks similar to NSI.

In contrast to Sandbu’s suggestion, what blocks private money creation is insisting that loans by private banks are funded just via equity or similar (e.g. bonds that can be bailed in). Certainly Milton Friedman and Lawrence Kotlikoff, both of who advocate banning privately created money argued for that “fund only via equity” arrangement.

Also, and again contrary to Sandbu’s suggestion, the fact of NOT ALLOWING accounts at the central bank for all does not stop the state being the monopoly creator of money. Reason is that it would be perfectly feasible to have an arrangement where private banks act as AGENTS for the central bank when  it comes to the laborous task of opening accounts for tens of millions of people. In fact Positive Money considers that arrangement in its literature.

Indeed, and quite apart from NSI, that arrangement is already up and running in the sense that the proportion of the money supply that is state created is now much larger than ten years ago, but NSI has not expanded in proportion. So how do you me and everyone with a positive bank balance access the expanded proportion of our personal “money supply” which is now central bank created money? Well what is actually happening is that commercial banks act as agents or “go betweens” between ordinary depositors and the central bank.

To illustrate, say you sold Gilts worth £X to the BoE, you’d have got a cheque (or the electronic equivalent) from the BoE for £X. You’d have deposited that at your commercial bank, which in turn would have demanded the BoE credited the commercial bank’s account at the  BoE to the tune of £X. Hey presto, you’d have £X at the BoE with your commercial bank acting as agent for the purposes of accessing and transferring that money should you so wish.

To summarise: nice to see a Financial Times article advocating nationalisation of the money supply.