Ritchie’s magic money tree

I was asked the following question on People’s QE on the blog this morning:

Richard, if you use printed money to pay for investment, who is actually paying for the investment? Are you suggesting that no one is paying for it? As an economist, you should explain who is paying for that extra investment.

That’s a fair question. This is my expanded response:

The investment is paid for with money created out of thin air. I stress there is nothing unusual about this: all bank loans are created out of thin air in exactly the same way and the investment those bank loans permit are not paid for by anyone as a result.

He’s still missing the point about banks, isn’t he? That by 4.30 pm each day they must balance their books.

But what’s much more fun is to think through the implications of this idea, that money for bank loans is just invented. That no one at all pays for capital investment funded by bank loans. It is, effectively, just entirely free cash.

So, why would a developing country ever be short of investment money? All they need to do is set up a bank and start issuing loans. There would be no need to tax foreign corporates at all to fund public investment, would there? Need to invest in health care? Issue a loan from the government bank. Need to invest in education? Issue a loan from the government bank. This is just invented money that no one has to pay for. Roads? Issue a loan.

So, is this what Ritchie advocates? Well, no, it isn’t is it? Ritchie is in fact one of those uttering blood and thunder about how corporates must be made to pay tax so that those developing countries have the resources to invest in those lovely things.

And it’s not possible to believe both things, is it? Either capital sourced from loans is free and thus taxation isn’t needed or taxation is needed because capital from loans isn’t simply created and thus isn’t free.

Which puts Ritchie’s overall belief system into something of a bind. He’s not just believing but insisting on two contradictory things before breakfast.

The existence of the magic money tree means tax isn’t important: but Ritchie says that tax is important thus the magic money tree cannot exist.

BTW, the people who pay for People’s QE is everyone in the decline in the value of their money as inflation takes hold. And yes, creation of M0 to spend into the real economy is inflationary. for inflation is always and everywhere a monetary phenomenon.

33 thoughts on “Ritchie’s magic money tree”

  1. “So, why would a developing country ever be short of investment money?”

    Because although governments can create infinite amounts of money for free, neo-liberals control the government and stop it doing do out of pure spite, to keep ordinary workers starving in mass obesity. I mean, poverty.

  2. “And it’s not possible to believe both things, is it? ”

    Yes it is.

    Ritchie is like the nasty scorpion thingy in the treestump in Flash Gordon. He lives in a cavity a the centre of the stump, and there are a whole bunch of passageways leading off in many directions, into which James Bond has to put his hand to be stung or not.

    What does the world look like to the scorpion? He can look out of any one of the tunnels at a time, and see a small part of the outside world. He builds his view of the world from what he sees out of these tunnels. But, he has ADD, so can’t concentrate long enough to form an overall view of the world by putting together what he sees through each individual tunnel.

    Furthermore, and just to destroy the analytical facilites, every now and again, some twerp twats him on the head with a big stick.

    So, when Ritchie looks through the tunnel that shows him the magic money tree, his ADD makes him see just the magic money tree, cos that’s all that exists outside the stump. And when he looks through the tunnel that shows him the Joy of Tax, then tax is indeed joyous and necessary for funding things, and he forgets the magic money tree. Oh, look, a squirrel!

    Finally, the scorpion knows he’s important cos every so often big people like James Bond put their hands into his stump for his adjudication.

  3. You have to learn to read Ritchie’s code. Effectively what he’s saying is that ‘the Jooz’ create money out of thin air all the time, so we’re just going to take their money and we’ll be done with.

  4. The comments section of Ritchie’s blog at the moment is like a succession of military funerals.
    “That’s your last post”
    “That’s your last post”.
    “That’s your last post”

  5. This is why the internet is crap.

    Imagine you are trying to understand all of this better, and so you go and google something on QE or the like.

    To which Google in its infinite wisdom leads you straight to the Number 1 Economics blogger in the UK (or whatever it is).

    And you end up reading that shit!

  6. If there is an unlimited supply of labour willing to accept no more from work than they get on the dole and a likewise unlimited supply of natural resources and every worker expends no resources in travelling to work in his clogs, then no-one has to pay for the investment.
    In any other circumstances, someone has to forego something that he/she wants in order for labour and resources to be diverted to the investment.
    Money is merely a means of exchange.
    What Murphy wants to is to effectively clip the coinage and so purloin some of the assets of all those who have claims on the government via banknotes to hand to his pets and/or paymasters.

  7. Is it not the case that now we are in a totally fiat money system world wide, there is indeed no reason why the Bank of Ruritania can’t issue billions in loans of invented Ruritanian groats to whoever wants them. The crucial issue being whether once you have your loan of 1bn groats anyone can be persuaded to part with actual physical stuff, or work, for it.

    I bet if Ruritania was a backward country consisting of 2 goats and a pig, its currency would buy you the square root of fuck all. Whereas if Ruritania suddenly discovers more oil than Saudi Arabia, their fiat currency might suddenly considered worth accepting for real assets.

    Any fiat currency is only as good as the confidence that the users of it have that it will allow them to get real stuff in return for it. No more, no less.

  8. I expect all bloggers self-love to an extent, but a more onanistic blog than Murphy’s you could not find, except for the times that the usual suspects arrive for the ritual circle jerk over Murphy in the comments.

  9. I asked the original question, and am a bit disappointed with Richard’s reply as he has avoided answering my straightforward question. His view appears to be that as long as the economy is not at full capacity then there is no cost. Putting aside whether there is a cost still to using idle resources, I have challenged him on how realistic it is to assume idle resources will all get used first. His response is to reject somehow this notion and say that at a macro level that wouldn’t happen.

  10. It’s hilarious – he’s like Hitler in the Bunker in Downfall – his post on the ASI blog was absolutely hysterical – ‘they want to create slums’ – what an utter numpty. I think Jeremy will be disavowing all knowledge of him fairly quickly!

  11. If money can be created out of thin air, what’s so special about banks?

    Why can’t I create money out of thin air?

    I think I need to know before Christmas, please, because if I can create money out of thin air, you will not believe Mrs Millers pressy.

  12. “@Abacab

    psh and tsh. Flash Gordon was made in 1980. Timothy Dalton wasn’t James Bond until 1987.”

    Once you’ve played Bond, you’ll always be, and will always have been, bond.

    Even if not one of the good ones.

  13. I still don’t know whether Ritchie is idiot or con artist. I do know the following:

    He genuinely used to believe that states needed the tax revenues of multinationals to finance their spending. Then he became intoxicated by MMT. So then he started tweeting thay we didn’t after all need tax to finance spending. Then he tweeted his praise of Polly Toynbee calling for tax rises to “fund the NHS”. When I asked him to say definitively whether he agreed we needed the tax to fund spending he replied “politically yes; economically no. You don’t understand the duality.” I responded that his duality was my lie; he blocked me.

    So now he believes in MMT, but will keep telling people that evil British multinationals are starving Africa of badly needed tax resources… because he’s a cunt. As I say, I still don’t know whether he is a stupid or a clever cunt; I know he is a dishonest cunt.

  14. “So now he believes in MMT, but will keep telling people that evil British multinationals are starving Africa of badly needed tax resources… because he’s a cunt. As I say, I still don’t know whether he is a stupid or a clever cunt; I know he is a dishonest cunt.”

    I think he’s suffering from the long-term effects of being twatted on the head with the end of that big stick. It looks kinda heavy. Must be like boxers whose career goes on too long and they take one too many punches to the noggin.

  15. OK, let’s see if I understand this.

    Printing money effectively takes money away from people who already have it – i.e. all the people who live in the country. This happens by causing inflation ( a dilution if you will) which makes the money that people have worth less and have less buying power.

    But this affects everyone equally. It is also a tax. A tax that affects everyone, rich or poor, equally.

    So it is a flat tax.

    And Richard Murphy thinks that people who like flat taxes are the fiscal equivalent of flat earthers.

    Is my understanding correct or have I missed something?

  16. @ abacab
    Any boxer, no matter how “punch-drunk” would take offence at being compared with Murphy.
    They hate cheats.

  17. @Abacab

    Timothy Dalton was OK. He did at least try to get back to the dark brooding flawed Fleming creation after Roger Moore’s camp buffoonery.

  18. Ironman

    Idiot or a con artist

    +1

    I always think con artist, not out of any malevolence but simply because I refuse to believe – as a qualified accountant with an economics background – he is that stupid.

    But then he keeps surprising me?

    A poster called Malcolm Ramsay on the same thread over there explains it to him extraordinarily clearly this afternoon, and yet still Richard claims (pretends?) he is just not capable of understanding it?

    Salamander

    Flat tax: I like it – but Ritchie will deny inflation, therefore you are a leo niberal peasant…

  19. btw, presumably PQE can easily be reversed, if you want to?

    The Curajus method: The state prints £100bn, grabs a load of brickies, goes and builds an airport / tunnel / HS3&4 / tidal system. Once done, sell the assets to the private sector, and then destroy the money you receive from the sale.

    Ie, no net new money created, ohter than you’ve “printed” the interest cost of getting the market to finance it. Do that when there is a lack of demand (otherwise no point), and sell the assets when there is excess demand? In theory.

    Alternatively, do some “bond buying QE” – with the difference being that at the same time you buy bonds you issue building permits for said tunnel / airport etc, and let the private sector grab said brickies etc, cutting Ritchie out of the deal… Sell the bonds when there is excess money floating around (ie as above).

    Hence, Isn’t this all just about “Carin’ Curajus” versus “Evil neo capitalist Markets”, and the rest is just tactics to Ritchie?

  20. @ salamander
    It does *not* affect everyone equally.
    What it does it pinch money from the sober working-man who is saving up in a Building Society and give it to the property speculator who has bought/built stuff with borrowed money. The rich who invest in property and equities but also have some loose cash suffer a little bit, but not much.
    To understand the evil of the Labour Party, you have to ask why Harry Hyams was a/the leading donor to it.

  21. @john77

    Doesn’t that make Ritchie’s idea even worse? Hit the prudent hard working stiff trying to save for their retirement and just help out the dirty nasty 1%er?

    Is Ritchie some crypto-neo-liberal fifth columnist trying to bring down socialism from the inside?

    Or should I go with the simple explanation: Ritchie is simply a stupid useful grade A idiot.

  22. salamander

    “Is Ritchie some crypto-neo-liberal fifth columnist trying to bring down socialism from the inside?”

    That frequently crosses my mind! It would explain much…

  23. I think Murphy has already said that the great thing about the national debt is that it inflates away. You owe someone £100m in 1930, which is big money, but by 2000 you’re talking in hundreds of billions so you don’t really care.

    It does seem to be the whole point of PQE: you spend a load of money, and you inflate the value away, so the only people who lose out are those who have savings. As people with savings are ipso facto neo-liberal capitalists, this is a feature, not a bug.

    You create £375bn of cash, pay a lot of manual workers to build a Useful Thing of some sort, the value of the savings of the neo-liberal prudent pensioners goes down but who cares (if they were good people they’d be penniless), and bob’s your uncle.

    Inflation is not actually an issue because (NB both the following are true):

    1) we’ll be deflating otherwise due to, er, the economy tanking because of neoliberalism (capitalists are all about ruining the economy, you know) so there will be no net inflation

    2) inflation is a good thing because it erodes the debt, so the net inflation we will have is good.

    Sorry, I’m 4 pints into a nice (but abbreviated) evening, spent in part with an enthusiastic Corbyn supporter. He agrees that Corbyn has lots of ideas, and that they may not be very good, but at least it gets people talking. It’s very nice to be able to say “I think you’re wrong, but you think I’m wrong, let’s have a beer and hope people think about things a bit in future instead of just trying to get elected” 🙂

  24. Lawrence

    Pointless asking you the purpose of posting the link – You are trying to prove my point?

    Murphy’s paranoia is getting the best of him – you’d better head over there and help him out. Indeed he (and you) are powerless against people with innocuous names out -arguing him and forcing either the deletion of certain entries or his pathetic ‘you are wasting my time’ lines which apparently counter well-marshalled arguments that run counter to his worldview.

    Even his latest post suggest he’s feeling the strain – anyhow, haven’t you got trolls to unmask? – run along, you pathetic lickspittle of a stool pigeon….

  25. Van_Rental

    The ASI link was to prove that the Murphy post was not as ‘hysterical’ as the original. You asserted that Murphy was being hysterical. I counter that by saying you are being hysterical by claiming he is hysterical. Indeed RM’s post is fairly low key compared to others.

    That makes you a twat.

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