Hoping that better monetary understanding leads to better politics

Thus concludes an article in the New Statesman by Josh Ryan Collins, associate professor in economics and finance at the University College London Institute for Innovation and Public Purpose.

Amoungst other things he states:

When you request a loan, the bank converts your IOU to the bank into liabilities upon itself that appear as newly created deposits that you can spend. Indeed, all money, including state money, is in essence a relationship of credit and debt.

The crucial difference is that while a commercial bank has a choice about whether to grant you a loan, the Bank of England has no such freedom…


The mechanics of the UK spending process demonstrate, beyond doubt, that government spending is not dependent on raising taxes or its ability to borrow on financial markets. Fiscal policy and debt management strategy should be reformed to focus on how the government can best achieve policy goals, such as reducing economic inequalities, maintaining full employment and supporting the green transition.

This is no more than most of us already know on Progressive Pulse but we need the information to be much more widely accepted and understood – in particular by journalists and Opposition MP’s!

There is a twitter thread here and the full paper “The self-financing state: An institutional analysis” is available here.

Let us hope that the fact that it is issued by a prominent mainstream university may lead it to be widely read and, of course, its conclusions even more widely recognised…


  1. Pingback: conservatives might show Labour the way… – Progressive Pulse
  2. Schofield -

    There’s an old adage that there’s nothing new under the sun which never rung true for me but I’ve started reading a fascinating book “How China Escaped Shock Therapy” by Isabella Weber in which she reveals the need for government interventionist policy along the lines of MMT Post-Keynesianism was already recognised well over 2000 years ago. This interventionism involved modulating the money supply along with government taking an active role in ensuring the supply of wheat, iron and salt in a predominantly agricultural economy. The parallels with the Conservative government being moved away from its Libertarian market fundamentalism to help low income citizens deal with the cost of living crisis couldn’t be more striking. All those years ago the Chinese had encountered market fundamentalism and found it didn’t work it had to be accompanied with active government intervention!

    1. Peter May -

      Oddly enough that was also a book on my reading list (much derailed by me and almost everyone I know getting Covid…)
      The history looks interesting.
      Have long thought that China’s economic predominance is inevitable because they’ve nicked the ‘best’ bits of capitalism and grafted it on to their own and then they understand that money is a government tool.
      As I’ve probably said before, it is inevitable, in my view, that China will win the battle over Western Capitalism because it doesn’t have to take account of capitalisms’s enemy within – which is the financial sector.

  3. Schofield -

    It’s page 25 of Isabella Weber’s book that reveals the weakness or Achilles Heel of Libertarian’s Market Fundamentalism. In their ideology there’s no full understanding of the interactive effect money has on real resources once human beings moved to a monetary based means of exchange.

    Over two thousand years ago the advisers of Chinese rulers developed a simplified way of explaining this interaction by stating that money and real resources can be either ‘light” or “heavy” in their interaction with each other. By this they are talking about the “value use” of these two things.

    They illustrated this by referring to staple human needs and in particular grain which was a main food source for the Chinese people at the time. The “value use” in normal times fluctuated according to the season and the climates of those seasons. If there was a good harvest there’d be plenty of grain to the point of surplus and the “value use” of the grain would be described as “light”.

    Of course because money existed (created by the state) markets existed and wealthy individuals would speculate (gamble next years harvest would be poor and even that by Spring each year the price would have risen anyway because the grain would have been consumed by an increased population).

    Of course such speculation could be disruptive by other events not just climate and high population increase but by war, pestilence and human plagues. The ruler for a variety of reasons needed to keep stability in the state and would then increase the amount of money the state created to buy a good grain harvest surplus for storage in state granaries (a buffer stock if you like which MMT says can be done with human resources). The Chinese then said the “value use” of money became “heavy” with the states intervention which not only achieved storage for a “rainy day” it actually increased the value of the grain at harvest time or rather helped keep the price stable or nominally inflated for farmers.

    What therefore is going on with these interactions. Something that’s not really recognised in the West that the interaction of real resources and money can be stabilised in their value usage by the states ability to create money from nothing. The cult of Market Fundamentalism helps obscure this not least because it’s attempting to obscure the activity of “rent seeking” often driven by the finance sector. How amazing the Chinese had this sussed so long ago!

    1. Peter May -

      It is, i agree.

  4. Schofield -

    You really need to get this 2021 published book of Isabella Weber it has to be the book of the moment because it shows up the fool-hardiness of Libertarian Market Fundamentalism very simply because this ideology is overly extreme not recognising that price point in markets particularly global ones are affected by other factors than the human manipulated ones of simple buying and selling. The obvious examples are Covid, Ukraine war and Chinese currency rigging and state bank subsidies such as debt forgiveness and roll-overs for its key businesses particularly the exporting ones. Here we have the turning point summarised on page 66 of Weber’s book which I will paraphrase we are now entering the era where economically and monetarily “the Invisible Hand has to be accompanied by the Visible Hand.” Hayek, Friedman’s and Kollantai’s ideological purism is no longer viable which means Thatcherism and Reaganism has had its day even though its political adherents may not quite recognise it yet!

  5. Schofield -

    I might add that MMT’s understanding that government’s can create money of its own for spending from thin air is very much an important component of that Visible Hand. Completely contrary of course to Thatcher ignorantly pronouncing government has no money of its own, it’s always badly needed to as the Chinese realised a long time ago!

  6. Schofield -

    But then you get this:-

    “Labour has called for an independent assessment of whether Rishi Sunak’s £21bn cost of living emergency package could cause inflation to rise even higher and a verdict on the fiscal impact of substantial borrowing.”


    Why do they call themselves a Labour Party anymore and not resign and go work for Rupert Murdoch or some other media billionaire!

    1. Peter May -

      Agreed – the conservative narrative is strengthened by Labour’s comments – deeply disappointing.

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