The first point to make here is that money is not, as orthodox economics would have us believe, a natural phenomenon. Contrary to what you will read in most the textbooks, modern money did not naturally ‘emerge\’ through market forces as a more effective tool for exchange than bartering. Whilst it\’s true that money does enable more efficient exchange, modern money is a creation of the state and has only been with us, in its current form, for less than 160 years. In 1844, the Bank of England Act outlawed the creation of money (then mainly coins and notes) by anyone other than the Bank. Prior to this, a range of private regional and local currencies circulated. Today, there remain a range of ‘complementary currencies\’ existing independently of the state, including commercial currencies such as Air Miles and loyalty points schemes and social currencies that nef has promoted, such as time-banking and the Transition currencies, not to mention a rapidly increasing virtual money scene enabled by the internet.
So we\’re going to use the current and historical existences of a variety of monies, all of which emerged through market actions, as proof that money does not emerge from market actions are we?
Luis Enriques has been known to scream blue bloody murder at the nef for, as a lefty himself, he thinks they are much more dangerous to the lefty cause than they are a benefit. He may well be right.
How does fractional reserve banking work? When you put £100 in the bank a strange thing happens. The bank holds on to a ‘fraction\’ of your deposit (say 1/10th) and lends the remainder out, charging interest upon it. This £90 loan is described as an ‘asset\’ by the bank – it has created it, as if by magic.
Err, no. The bank now has a liability of £100, an asset of £90 and £10 in reserves. Assets plus reserves need to match liabilities: this is something known as \”balancing the books\” and is both something which is taught on page 1 of every text on double entry book keeping and is also something which ever bank does every day.
the great German economist Joseph Schumpeter
Erm, Austrian perhaps, Moravian even, but not German.
In 1914, for example, the Treasury issued ‘Bradbury notes\’ to fund the 1st World War effort. There is no evidence of significant inflationary effects.
However, it can be seen
from Table 10 that the GDP deflator, the retail price index and the money supply all
approximately doubled between 1913 and 1918.
Luis really might be right…..