Book review: Andrew Jackson and Ben Dyson, Modernising Money: Why our monetary system is broken, and how it can be fixed
A bank loan is a change in the electronic digits attached to my bank account number. The bank has simply created the money that it has lent to me. The message of this book is a very simple one: This shouldn’t be allowed. The only institution that should be able to create money is an independent public body.
Modernising Money recounts the history that gave rise to the current state of affairs; shows that 97% of money exists in the form of bank deposits; and discusses the factors that determine how much banks lend, and therefore the size of the money supply. Much of the money created by the banks buys assets that are in limited supply, such as houses, and it therefore creates price bubbles. Too little of it is employed as investment in the productive economy. If the loans are not repaid, then lending stops and a recession is the result. Interest on public and private debt transfers money from the poor to the rich and so increases inequality; and the payment of interest requires climate-changing economic growth: but attempting to reduce the level of debt reduces the money supply and can lead to recession.
Clear and persuasive diagnosis is followed by a clear and persuasive prescription. Banks should be prevented from creating money, and an independent body should be charged with creating money and spending it into the economy as government spending, tax reductions, debt repayment, payments to banks on condition that the money is lent to productive businesses, and direct payments to citizens. Chapters then discuss the transition between the current system and the new economy that would be created by the new method for creating money, and the impacts of the new system on democracy, the environment, household indebtedness, the banks, and businesses are debated. As the concluding chapter puts it, ‘the monetary system, being man-made and little more than a collection of rules and computer systems, is easy to fix, once the political will is there and opposition from vested interests is overcome’ (p.283).
In some ways the situation relating to money creation mirrors the one facing our tax and benefits systems. Both have evolved over time, both exhibit complexities, both are tangled up with a wide variety of other aspects of our society and our economy: and genuine reform of both is resisted because the transitions look difficult and the effects of change are difficult to predict. It is precisely these aspects of the two situations that make it so difficult to generate the necessary political will to create the necessary change. Both fields would benefit from Royal Commissions or similar wide ranging consultation exercises. In both cases, the international effects of making the recommended changes would be important matters for discussion, as would be the details of the transitions that would need to be managed between the current situation and the future situations envisaged by the authors of this book and by the Citizen’s Income Trust.
The book has no index, which is a pity: but otherwise it is a well-produced, informative and well-argued essay that deserves attention.