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Credit Creation

Cooking the Books: Green Recipe for Raging Inflation

‘The Green Party believes’, reads a resolution carried at their annual conference in September, ‘that the power to create money must be removed from private banks.’ What power, and how?

At one time ‘money’ was defined just as the notes and coins issued by the government or a central bank, but modern economists have come to include bank loans too as money. This can be confusing if it is assumed that these two types of money are the same, as is often done. For instance, the Green Party resolution says that only 3 percent of the UK’s ‘money supply’ is issued by the central bank as notes and coins, with the remaining 97 percent taking the form ‘of credit that is created electronically by private banks through the accounting processes they follow when they make loans’ (emphasis added).

'Militant' Confusion About Inflation

The West London supporters of Militant (the Trotskyite group which still believes in infiltrating the Labour Party) have recently republished a pamphlet, which first appeared in 1977, entitled Inflation and the Financial System.

It begins by explaining, using arguments first developed by Marx in Value Price and Profit, how a rise in wages leads to a decrease in profits rather than an increase in prices and goes on to draw the correct conclusion that

“since we have a paper currency which is not convertible into gold, inflation is caused by the printing of paper money in excess of the actual requirement of circulation.”

Book Reviews: 'The Value of Radical Theory - An Anarchist Introduction to Marx’s Critique of Political Economy' & 'Disassembly Required - A Field Guide to Actually Existing Capitalism'

Marxian economics

The Value of Radical Theory. An Anarchist Introduction to Marx’s Critique of Political Economy. By Wayne Price. AK Press. 190 pages. £8.95.

We often joke that anarchists know very little about economics and that what little they do know they got from Marx. US class-struggle communist anarchist Wayne Price seems to agree and has written  a short book to explain Marxian economics to his fellow anarchists.

Cooking the Books: Loose Talk About Thin Air

The pre-WW2 currency crank, Major Douglas, used to talk about banks being able to create credit by a mere “stroke of the pen”. Currency cranks have been comforted in this belief by some modern writers on money and banking saying that banks can create money out of nothing. What the cranks don’t realise is that these writers mean something quite different.

One quote they have trumpetted all over the internet is from leading Financial Times journalist Martin Wolf who wrote in 2010:

“The essence of the contemporary monetary system is creation of money, out of nothing, by private banks’ often foolish lending.” (10 November)

US economist, Paul Krugman objects to such talk:

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