Welcome to the money factory

After rather an animated discussion last evening I was reflecting on why , even when the Bank of England acknowledges that we don’t spend and tax (“Regarding whether taxation is necessarily required to finance government spending, the answer is no, it is not”), it is not enough for some.

Of course there is the £435billion of Quantitative easing that was created out of thin air – but that can be dismissed as ‘exceptional’ – even though it is an exception that proves the rule, because not a penny of tax was raised in order to spend it. Nor was any money borrowed – the whole point is that there was no one to borrow it from!

There was much further argument about history – where did Elizabeth I’s money come from? I think Drake’s piracy provided much of it. We know William III brought ‘Dutch finance‘ with him and we ended up, in due course, with the Bank of England. Yet the Bank of England was granted a charter to operate only for about 15 years and when renewed again in 1713, after various monetary crises, they ended up bribing the government with an interest free loan in return for a monopoly of supply. This became characteristic and meant the Bank of England was always close to, and trying to influence government. And banks have continued to try to do that ever since.

In the end I came to the conclusion that all this is interesting but not absolutely relevant!

Money isn’t a Natural Law. It is not the sun or the moon, nor even gravity or the tides. Though to listen to the media you would be pretty certain it was.

So it’s not 1588 or 1694 it is the here and now.

We don’t need to be bothered how money used to work because it’s a system constructed by mankind for its own benefit. It can change because we think it advantageous to change. Money works because we want it to. Money works however we say it does.

And what if, say, we chose to abolish money. Who would that upset?

Most of us I suspect. But the people who had very little or none of the stuff would be marginally much less upset than those who had a lot. Isn’t this the test?

When people tell us how the money system ‘works’ it would be a good idea if we could bear this in mind. When the wealthy or the people in ‘the City’ tell us how the system works and what the government should be doing it would a good idea to think if these workings were advantageous to them.* Because the system is not immutable and their system is, by definition, our system.

It’s not their money – it’s just possible that they are in a probably prolonged, but necessarily temporary, possession of much of it.

In the end the money system works how the government of the day wants it to work. As indeed austerity currently shows us is the case.

Spending cuts today are dressed up as being vital for our future prosperity, though it is pretty counter-intuitive that you can improve financial prosperity tomorrow by cutting financial expenditure today. People accept this non sequitur seemingly because they think they cannot understand economics – this economic ‘science’ is so incomprehensible…. Yet of course the economy is in fact the political economy.

And money works because we make it work. We need a government that makes it work for everyone – even perhaps, for the many and not the few.

Nowadays the government is a money factory. We elect the government and the money factory is ours. We don’t need to fall for the idea that it it actually belongs to somebody else.




*Pensions are related but have been pretty unsuccessful and may well be a Trojan Horse - blog to follow.


  1. Ivan Horrocks -

    There are certain abiding and deeply entrenched myths that have to be maintained to protect the hegemony of the system (which by definition also means the people who most benefit from it) that shape and control the society in which we live, Peter, and this is one of the fundamental ones. And by making the concept of the creation (and destruction) of money seem so very, very, complex that deters the vast majority of people from asking questions that would then threaten to undermine a plank of that hegemony. Austerity has become a more recent example of the same strategy. Your blog does a really good job at debunking both.

  2. Geoff -

    I agree with Ivan. I regularity hear people defending current policy as being an inevitable consequence of profligacy. They seem incapable thinking outside of their comfort zone even when it becomes obvious they are defending the very system that’s depriving them, and future generations of so much. I also hear “be grateful for what you have” the implication being don’t tempt fate as if man made systems are divine!

    Thank you Peter I hope you don’t mind if I share this, it adds value to our arguments in favour of change.

    1. Peter May -

      Please do!

      1. Geoff -

        Thank you

  3. Graham -

    Yes, this economics “thingy” that government has to do is so very, very complex, so let’s think of it as a family household – you can’t spend more than you have or you’ll get into terrible debt and end up paying it off yeay even unto the fourth generation blah blah……

    I can’t decide whether politicians who spout this garbage actually believe it or whether they are so totally cynical and simply use it as a smokescreen.

    It’s going to be a hard battle to disabuse the public of a metaphor which chimes so intuitively that it must be right.

  4. Ivan Horrocks -

    Graham, I think you’d find that a good number of them actually believe it because their knowledge of how the system actually works is lacking. Indeed I know an ex MP of many years who has a very limited knowledge of economics and I suspect he’s pretty representative of the bunch. Then add to that those who don’t want to know because it challenges their ideology, or only want to know what suits their ideology, and that about covers them all. And finally, we have the situation you mention in your last sentence – this nonsense sounds so intuitive that it must be right.

    One of the most stunning examples of this nonsense in operation I heard recently was when the US Tranporation Secretary (who just happens to be the wife of the Republican leader of the Senate, Mitch McConnell) was being questioned about Trumps infrastructure policy and replied that there ‘wasn’t enough money on the world’ to replace and repair all the desperately poor US infrastructure. As the MSNBC political commentator, Lawrence O’Donnell subsequently pointed out, not only is there enough money on the world, but there’s enough money in America – otherwise how did all the infrastucture get built in the first place. In short, reparing and replacing it is simply a matter of political choice – just as subjecting already poor, sick and disabled people to even more financial hardship through a policy like universal credit is.

  5. Graham -

    Stunning indeed.

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