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Re Martin Wolf, he did (I think rather thoughtlessly and without re-reading what he had written) write in the Financial Times (9 November 2010):

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The essence of the contemporary monetary system is creation of money, out of nothing, by private banks’ often foolish lending.

Naturally this was seized upon by currency cranks and it is now almost obligatory for them to quote it in any argument.I emailed him to ask what he meant and he replied (23 June 2011):

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In the contemporary monetary system, money consists of the liabilities of the central bank plus the liabilities of commercial banks that enjoy the ability to borrow freely from the central bank. These institutions can create money at will, and they do. (my emphasis)

This is not the same thing as saying that commercial banks can create money on their own out of nothing (the standard currency crank argument). What it is saying that some of them can get some of the money to lend by borrowing it from the central bank and that the central bank can create money at will. But nobody has denied that a government-controlled central bank can do this. The argument is over whether commercial banks can do it, whether they can lend what they haven’t got (or can’t get). Clearly they can’t. In fact, Wolf’s argument assumes that they can’t (borrowing is involved even if from the Bank of England).Wolf’s argument here is not the same as that put forward in the New Economics Foundation booklet Where Does Money Come From? that Francesco held up at the meeting. This argues that not only banks that can borrow from the Bank of England can create money out of nothing (the furthest Wolf can be regarded as going, though in fact it is the Bank of England that does the “creation”), but that all banks can do this, and not only all banks but building societies and even credit unions too.Martin Wolf was a member of the Independent Commission on Banking, chaired by Sir John Vickers, whose final report was published in September last year. This report takes it for granted that banks are “financial intermediaries” between “savers and borrowers”, describing the “the core function of banks” as “taking deposits and making loans”.

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The financial system has three broad functions: to facilitate payments; to intermediate funds between savers and borrowers; and to help manage financial risks.[para A3.7,page 270]

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The challenge for policy is to strengthen the resilience of the banking system without obstructing the efficient performance of the core functions of the financial system to which banks are central – facilitating payments, intermediating funds between savers and borrowers, and helping to manage financial risks.[para A3.109, page 308]

No mention of banks being able to provide funds to borrowers out of nothing. And no dissenting report from Martin Wolf saying this. Clearly, he doesn’t really believe that banks can create money out of nothing, except perhaps in rushing off a sloppy article for the FT.

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Here’s an interview with another Party Hyde Park speaker (and much more), Les Cox:http://vimeo.com/44421054

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stevead1966 wrote:

I  have not read Thompson’s Morris biography but if he was following some CPGB diktat to identify domestic currents of Marxism as opposed to ‘foreign’ influences ie. Moscow, then it could be suspect.

There are two editions of his biography of Morris. The first came out in 1955 when he was still in the CP and does put the “Party line”. In the second edition, in 1977, Thompson cut out much of this and added a 50-page postscript. This is the one to read, even though he does criticise Morris for what we like in him, what Thompson called his “purism”. It is probably the best biography of Morris, certainly better than the more recent one by Fiona McCarthy which tries to make him out to be some sort of  Green rather than a class-struggle Socialist.

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Agree that our Media Dept could have put something about the Deborah Orr nonsense on the comment section. Unfortunately, that’s now closed but there were 449 comments. Most of these were either from currency cranks of one sort or another or from friends of the Coop Bank. There were a few intelligent contributions, though. For instance.

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Ignorant tosh. Money creation has nothing to with electronics and would still happen if everything worked via parchment, quill and carrier pigeon. I think there might be a teensy bit more to it than described here: if banks really can create money at the stroke of a keyboard and that’s it, how can they ever go bust? Why don’t they just create money every time they need to pay somebody?

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When Deborah Orr or Zoe Williams tell me that money is created by banks ex nihilo or Simon Jenkins tells me that Quantitative Easing is just moving figures from one column in a spreadsheet to another I think to myself that they are probably wrong. I say that because commentators without any technical expertise in the area in which they are commenting always love explanations that are simple, plausible and wrong.Debt and credit are two sides of the same coin. A bank can lend money it does not have immediately available so long as it can borrow money to cover its consequent debts. A borrower can borrow money so long as its creditors believe it will be able to pay it back. What happened to Northern Rock, RBS, Lehman Bros, most Irish banks and Bankia of Spain is that they got to a situation where they were unable to borrow any more money. What has happened to Greece and is in severe danger of happening to Spain and Italy is that they have arrived at the same place. If any of those institutions or sovereign states could continue to create money out of nothing they would do so. But they cannot.

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I think this column sets a new low in terms of its level of confusion about money creation. Deborah Orr has basically reproduced a non-sensical conspiracy theory promulgated by positive money.Perhaps the Guardian could get someone who has mastered economics to at least A-level standard to comment on the workings of the financial system.

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banks can’t create money out of thin air. If you genuinely think that then you really should go and find a professional to explain it to you.

We didn’t get in, but someone from Zeitgeist did:

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But are you so blind not to see that the problem is the monetary system and how it works?Have you done your research? Do you know how modern money mechanics work?The only solution is to end the monetary system.One of the solutions is called Resource Based Economy.This is supposed to be an alternative paper, please please stop this nonsense and talk about real alternatives to this slavery system.

That’s probably expecting too much from the Guardian. 

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A comrade has sent in an article by columnist Deborah Orr from the Guardian of 14 July with the comment “please write a reply to this silly woman, Don’t let her get away with this nonsense”.Here’s the nonsense she wrote:

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The big international banks manufactured money using very simple raw materials. All they needed were computers and borrowers. Every time they made a loan, the banks simply typed the amount they were lending into their computer system, transferred it to their victim’s account, and charged interest for the privilege.

Nonsense indeed, but Guardian-readers must like this as the paper gives free rein to people’s spouting such nonsense. She goes on to advocate that banks should

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be lending from their capital, not ‘lending’ money they had conjured from the thin air of cyperspace.

She doesn’t seem to understand the difference between a bank’s capital (the money invested in the business) and money that has been deposited with it which it relends (only private banks, moneylenders and loan sharks lend their own money). Assuming that she means the latter, what she is advocating is what banks, including the big international ones, do anyway: relend money that has been lent to them or which they have borrowed. So the “reform” she is advocating isn’t needed.She discloses that she banks with the Co-operative Bank and urges others to switch to it, which suggests that she knows that this bank lends only what it has (or maybe she thinks that it’s against this bank’s proclaimed “ethical” principles to exercise the power it could to create money out of thin air). But she can’t have it both ways: either all banks can create money to lend out of thin air or none can. Actually, none can.

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gnome wrote:

Bear in mind also that they (TZM) have over 800 members of their Meetup group compared with our 77 and at least 18 of them have RSVP’d for Sunday compared with our miserable 5, three of whom I’ll be bringing!   Fucking pathetic and some members wonder where we’re going wrong………..

I think this will have more to do with the difference in average age of us and them, with them having the lower average age and so being more internet-savvy.

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There might well be a queue. I saw the Zeitgeist organiser yesterday and he said they were expecting about 30 of their people to turn up and the room only holds a maximum of 60.  Tea is supplied but you might need to bring your own biscuits.

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Interesting aside in the report in yesterday’s London Evening Standard on the handing over of some Lloyds Bank branches to the Co-op Bank:

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If done well, banking is a dull affair, a bit like central heating. You try to use it as little as possible, but it never fails when you need it. It used to be called 3-6-3 banking (pay interest at 3%, charge interest at 6%, hit the golf course at 3pm)

This contrasts with the currency crank theory that it should be called 0-6-3  banking (create money from thin air, charge interest at 6%).

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The EC have passed the following resolution: “Motion 8 – Browne and Wicks moved that “as there is no definition in the rule book of a Regional branch, the Conference resolution relating to quorums – “Conference resolves that, for regional branches, the quorum necessary for meetings be 3 for the first 15 branch members, with a further 1 for each further 10 members.”- be applied to all branches.” Branch quorum is therefore reduced to 4.

How many members does North London have? 25 or over, I assume. We had a discussion on this at West London branch. As we have 24 members, we worked out that under this ruling our quorum had been reduced to 3 from 5. Which we think is ridiculous and will be telling the EC.The previous Branch Standing Orders (only adopted by the EC within the last year) laid down the following formula for calculating a quorum:

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In order for a properly constituted branch meeting to take place the members participating shall have to be 3 for the first 10 or part of ten and 1 for every part of ten

On this formula, the quorum for a branch with 24 members is 5 (3 for the first ten, 1 for the second ten, and 1 for the remaining part of ten).The resolution carried by Conference amended this not only to replace “the first 10” by “the first 15”, but also to replace “and 1 for every part of ten” by  “and 1 for each further 10 members”. Which makes all the difference. This may well have been unintended, but it brings out the point that this resolution was badly drafted and was probably out of order (by drawing a distinction between branches not laid down in the Rulebook) and should never have been passed.It needs to be repealed (or at least amended to restore “1 for every part of ten”) at the earliest opportunity, i.e. Conference next year. 

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It’s on Youtube (for the time being?):http://www.youtube.com/watch?v=MCQnM-tF4SI

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jondwhite wrote:

BBC 2 tonight at 9pm is broadcasting The Riots In Their Own Words.

They were going to but didn’t. I switched on at 9pm and found myself watching some patriotic trash glorifying war.  So I switched off. Apparently there was a Court order to stop it being showed:http://www.guardian.co.uk/uk/2012/jul/16/court-order-bbc-film-riots?newsfeed=trueBe interesting to know more about this.

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Ed wrote:

is there any more of that peoples century video?  It looked like Harry Young had more to say on the subject.

There will have been but it wasn’t used. I saw the raw material for an earlier interview for TV and what was interesting was how the producers coached him to say what they wanted to broadcast. Harry kept mentioning the famine conditions then prevailing in Russia and how in these conditions socialism wasn’t possible, but all they wanted to hear was that he had heard Lenin speaking at a meeting of the Comintern. In the version I saw he said that Lenin spoke in German with a heavy Russian accent.Incidentally, Harry claimed to have been present in person when both Trotsky and Stalin spoke. Which is quite possible as he lived in Russia for 8 or 9 years in the 1920s when he was an employee of the Communist Youth International.

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Just come across a video on Youtube by the Richard Werner who wrote that article with Green MP Caroline Lucas:http://www.youtube.com/watch?v=wDHSUgA29LsIt’s quite a clear statement of the case for saying that banks can create money out of nothing, but since this is so divorced from reality, how did he ever get to be a professor of banking? Typical of the Green Party to give credence to such views.

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jondwhite wrote:

Am I correct in thinking the limit of central banks creating money after which the currency devalues is the national growth rate of the economy?

More or less, at least in the short run. The currency shouldn’t devalue if the rate at which it is increased is not more than the rate of increase in economic transactions for which it is used.

jondwhite wrote:

As long as the economy is growing, central banks can issue more currency?

Central banks can of course issue more currency whenever they want, but if the economy is growing they can (and probably should) safely issue more (within limits).But the official government policy in most countries these days is not to maintain a stable price level and currency value (the same thing from a different angle) but to achieve a slowly increasing price level by means of a slowly depreciating currency of about 2 percent a year.

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Found another article accepting the myth that banks can create money out of nothing. This time endorsed by Green Party MP Caroline Lucas. The incriminating passage reads:

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central banks only create 3% of the money supply. Normally, 97% is created by banks through their extension of bank credit. If you wonder how this works: banks simply pretend that borrowers have deposited the money that they lend them, and thus create it out of nothing when they credit their deposit accounts, adding to the money supply.

This is to misinterpret double-entry book-keeping. Under this the “liability” (the loan) has to be matched by a corresponding “asset” (the borrower’s debt to the bank). No extra money (purchasing power) is created. It’s just a book entry and of course the bank has to already have the money to make the loan.Note that the article contradicts itself by talking about the Bank of England creating £275bn extra money apart from the 3% mentioned (which are notes and coins).Two points. First, central banks can create more money (additional nominal purchasing power) out of nothing (though if they create too much this will devalue previously existing money). But individual banks can’t (they have to have the money first before they can make a loan, even if they get it from the central bank as in the recently announced scheme to get banks to relend money to small businesses). Second, if you define “bank loans” as “money” then by definition banks create money (but not out of nothing).The Green Party obviously doesn’t mind making a laughing stock of itself. Their way out of the crisis? The Bank of England financing cycle paths in every city ….

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