14 Feb 2013

Has the tide turned?

Things are moving very fast (at last).

Adair Turner, the head of the UK's Financial Services Authority, gave a major speech last week to the Cass Business School called "Debt, Money and Mephistopheles : How do we get out of this mess?" In it,  he broke the taboo that has prevented mainstream economists from even considering the possibility that central banks could provide debt free money to governments. You can read the full 46 page text of the speech here, download the slides here, and you can even watch it on Youtube here.

Anatole Kaletsky, in an article for Reuters, called the speech "A breakthough speech on monetary policy". The speech also got a plug from Martin Wolf at the Financial Times, who has a piece called "The case for helicopter money", where he argues that
"... it is impossible to justify the conventional view that fiat money should operate almost exclusively via today’s system of private borrowing and lending. Why should state-created currency be predominantly employed to back the money created by banks as a byproduct of often irresponsible lending? Why is it good to support the leveraging of private property, but not the supply of public infrastructure? I fail to see any moral force to the idea that fiat money should only promote private, not public, spending."
And, not surprisingly, Adair Turner's talk was also big news for the people at Positive Money where Andrew Jackson (one of the authors of the "Modernising Money" book) has a piece that quotes extensively from Adair Turner's speech.

Ellen Brown was also impressed, and has just posted another excellent commentary called "How Congress could fix its budget woes - permanently" in which she also refers to the speech as a landmark.

In fact, Adair Turner spent quite a lot of time talking about propositions that were made by a certain Milton Friedman who wrote a paper calle "A Monetary and Fiscal Framework for Economic Stability" back in 1948. In it, Friedman made it clear that there was actually a very good case for allowing newly created money to be spent directly into the economy by governments. Specifcially he was proposing:
  • A reform of the monetary and banking system to eliminate both the private creation or destruction of money
  • discretionary control of the quantity of money by central bank authority
  • A policy of determining the volume of government expenditures on goods and services .... entirely on the basis of the community's desire, need, and willingness to pay for public services
That is incredibly close to the sorts of ideas that I was proposing last year, when I proposed that governments should spend money into the economy by directly financing projects that are in the public interest, and which recieve overwhelming support from the electorate.

It really looks as though the cat is out of the bag. It is no longer possible to ignore the fact that there are real alternatives to the current system in which commercial banks have an effective monopoly on the right to create the money supply. And, of course, as I have argued on many occasions, the fact that banks create money and then charge everyone, including governments, interest is total insanity.

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