Richard Murphy says:
July 9 2021 at 3:58 pm
Banks create money solely because the government licences them to do so. They cannot do so otherwise. As a result the backstop of all money creation is the government
Banks create money by creating credit. OK – but anyone who creates credit is creating money.
Might well be money of greater or lesser righteousness, use, anonymity and so on but it’s still money.
To take a stupid example. We’re in a pub. We’re drinking in a round. First bloke gets the round in. That’s the creation of credit. The other three – this is only a small sessh – now owe our first bloke a pint. And on to stage two, one bloke has paid off that debt – destroying credit in the process – but the other two now owe two pints each and so on.
We have credit creation and destruction in the course of buying rounds for people. And there’s not a single government licence in view here, is there?
And if bank credit is money – which it is in the wider sense – then so is drinking in rounds.
Money creation might well be influenced by government rules, we’ll agree to that. But it is not dependent upon a government licence.
“We have credit creation and destruction in the course of buying rounds for people. And there’s not a single government licence in view here, is there?”
Shouldn’t the publican have a government-issue thingy or two up somewhere saying (s)he’s licensed to sell those pints?
Pendantry, but….
Don’t give ’em ideas!
I recall that round-buying was banned, sometime…WW1? by interfering Government,and they talked about doing it more recently, though I forget why.
The example is valid, but will only encourage His Spudness to advocate the creation of new laws.
Yeah, but doesn’t an institution need a licence to lend money? Otherwise it is the Kray Twins theory of banking.
Murph may never have bought a round. Or maybe he drank too much. It’s hard to tell.
Nothing wrong with the Kray Twins theory of banking.
Compared with Barclays
“I recall that round-buying was banned … and they talked about doing it more recently, though I forget why.”
Tim, they just did. They said because of Covid.. They’ve relaxed it again just for now.
@dearieme: I would be willing to bet that Murphy has in fact never bought a round willingly. My past experience with socialists is that they disappear when it’s their turn.
You can’t use “my mate owes me a pint” as legal tender to settle taxes or other debts though. It’s being forced to take a debased currency that’s the problem.
“Murph may never have bought a round. Or maybe he drank too much. It’s hard to tell.“
More like no one has ever invited him in to a round
Despite being a Crab, I spent 4 years on loan to the Royal Navy. In the wardroom the system was simple, whoever “bought” a round simply added your bar number to your order on the bar chit. No free-loaders, each paid for his own drinks.
PS: Crab – RAF officer alledgedly from the colour of our uniforms, crab-fat blue.
Heh, no, it was because the early RAF uniforms were the same shade of blue as the unguent the MO would give you if you’d picked up a case of the Sandy McNabbs from the Gut, or Spice Island, or Guzz…
Some people can’t see beyond what is.
Murphy thinks money can’t exist without government. He probably thinks property rights can’t exist without a *government-controlled* title agency too.
You may not be able to use a bar IOU as legal tender, but only cash is that anyway.
People will take all sorts of things other than cash. Drugs and Bitcoin being common enough.
Lord Spudcup is fixated on pound notes and their substitutes, particularly on Bank of England banknotes as money, and fails to realise other things have many of the same characteristics of money.
What is money? It is a medium of exchange, and a store of value.
What makes it a medium of exchange? The willingness of other people to accept it in exchange for something. Very circular, a medium of exchange is that which people are willing to exchange.
What makes it a store of value? The fact that it is a medium of exchange and so you can store value in it for future use. Lose the willingness of people to accept it in exchange and it ceases to be a medium of exchange, ceases to be a store of value, ceases to be money, all without Government diktat.
So, what is money? A medium of exchange.
What is a medium of exchange? Anything people will accept in exchange for something.
What are people willing to accept in exchange for something? Whatever they are willing to accept in exchange for something.
If I’m doing porridge, I can use cigarettes to exchange for goods and services from people who are willing to accept them. That makes cigarettes a medium of exchange. And because they are a medium of exchange they are a store of value. I can accumulate cigarettes and by doing so I accumulate future ability to exchange them for goods and services, they are a store of future use, a store of wealth. Cigarettes are money.
In WW2 Germany the Reich Mark was exchangable for goods and services, that made it a medium of exchange. Because it was a medium of exchange it was a store of wealth. Recih Marks were money.
Immediately after WW2 people declined to accept Reich Marks in exchange for goods or services. It ceased to be a medium of exchange, and as it was not a medium of exchange it was incapable of being used as a store of wealth as there was no future exchange it could be used for. It ceased to be money.
HM Revenue is willing to accept Landed Estates, fancy cars, paintings, vintage wine in payment of tax. They all are stores of value because they can be exchanged for something in the furture, working backwards, items that are stores of value are able to be used as mediums of exchange, precicesly because they are stores of value.
There are things like the Bristol Pound that people use to exchange for goods and services. That makes it a medium of exchange without it being issued by the Government. By being a medium of exchange it makes it a store of wealth, again without being issued by the Government.
I never took any economics lessons, but surely this is obvious.
If Lord Spudcup gets his orgasm and controls the Bank of England pound note supply, people will simply move over to some other medium of exchange to exchange for goods and services and store wealth.
All rather rambling and circular, but sometimes this is like talking to a child. It’s an elephant because we call it an elephant, we call it an elephant because we call it an elephant.
1. “ No free-loaders, each paid for his own drinks.” It was technically there to track the drunks. Most of us drinking enough ( or just the officers) that they couldn’t be spotted any other way.
2. “Shall I write for you, Sir?” aka junior officer doing the work of going to go and fetch the drinks but putting them on the various seniors’ tabs was just going out when I joined.