Wednesday 23 October 2019

Some of the economists who oppose the right of private banks to create money out of thin air.


Josiah Stamp, director of the Bank of England in the 1920s:  

"The modern banking system manufactures money out of nothing. The process is perhaps the most astounding sleight of hand that was ever invented...".

Irving Fisher, professor of political economy at Yale in the early 1900s: 

"We could leave the banks free . . . to lend money as they pleased provided we no longer allow them to manufacture the money which they lend."

(Fisher's book, "100% Money and the Public Debt", p.15)

Josiah Stamp: "If you want to continue to be slaves of the banks and pay the cost of your own slavery, then let bankers continue to create money...".

Martin Wolf, chief economics commentator at the Financial Times:

See his Financial Times article entitled "Strip private banks of their power to create money."

As for why a system has not been set up where private banks are barred from money creation, Milton Friedman's explanation was:

"The vested political interests opposing it are too strong, and the citizens who would benefit, both as taxpayers and as participants in economic activity, are too unaware of its benefits and too disorganised to have any influence."

(Friedman's book, "A Program for Monetary Stability" Ch.3.)

James Tobin (Nobel economist):

“Deposit insurance is a delegation to private enterprises of the government's sovereign right to coin money.”


Tobin opposed the right of private banks to create money, and his above point was that absent deposit insurance, liabilities issued by private banks are essentially in the nature of shares: those liabilities can lose much or all their value. But once an insurer with an infinitely deep pocket insures the liabilities (i.e. government), those liabilities effectively become money, since (like dollar bills or £10 notes) they cannot lose value (inflation apart).  The above quote is from his work “The Case for Preserving Regulatory Distinctions”.

Felix Martin: see his book "Money the Unauthorised Biography", last chapter in particular. 

Laurence Kotlikoff, economics prof in Boston, USA. See his book "The Economic Consequences of the Vickers Commission". (Free online)

Joseph Huber, chair of economic and environmental sociology at Martin Luther University of Halle-Wittenberg, Germany. 

See his book "Sovereign Money Beyond Reserve Banking".

This review of the book says "The concluding part of this book is dedicated to . . . advocating a move towards the sovereign monetary prerogatives of issuing the entire stock of official money and benefitting from the gain thereof (seigniorage). The author argues that these functions should be made the sole responsibility of independent and impartial central banks with full control over the stock of money (not the uses of money).....". 

Maurice Allais (Nobel economist). 

Ronnie Phillips's paper "Credit Markets and Narrow Banking" (Levy Economics Institute working paper No.77), starts, "Maurice Allais's view, share by others, that the credit created by fractional reserve banking is the equivalent of counterfeiting has led to recommendations for reform of the financial system to separate the depository and lending functions of banks."


  1. You could also add Christian Gomez,one time student of Allais',who has worked in both economic academia and the financial sector.

    1. Also Also John Cochrane, senior fellow at the Hoover Institution at Stanford and former a professor at the University of Chicago Booth School of Business. See for example:

      Also Mervyn King (former governor of the Bank of England) was quite sympathetic, while not fully endorsing full reserve: “I think ideas in this spirit . . . . . certainly merit serious consideration in the debate as to how we reform our financial system. I remain sympathetic to these views.”

    2. Plus David Ricardo. See his “Plan for the Establishment of a National Bank” - about half way down here:

      Ricardo suggests a committee of “commissioners” very similar to Positive Money’s committee of economists (independent from politicians). Plus Ricardo refers to banning money creation by what he calls “county banks”) – i.e. bank other than the Bank of England.

      Plus Adair Turner seems very supportive of full reserve in the “Foreword” here:

    3. Also a very long list of notables going back to around 1,750 BC in Mesopotamia listed in this article:

  2. Prof Steve Keen, Head of the School of Economics, History and Politics at Kingston University and author of the book "Debunking Economics".


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