Actually, all money in the UK is made in one of two ways. Either by the government spending it into existence, and we’re going to deal with that in separate videos, or, as in this example, with the bank lending somebody new money as a result of an agreement between them and the borrower. And that new money that the bank lends is then deposited back in the banking system, because no wise person holds money in cash.
Therefore, in the UK economy and in the economies of the world at large, most bank deposits, that is money in savings accounts, is created by the banks themselves by lending money into existence.
Now that’s really important. Because what that really means is that all the private wealth that is recorded through the mechanism of money is only in existence because banks have lent.
We can tell where this is going, can;t we? Because the banks just invented it all thereforethe government can tax it all.
The actual answer being no – savings are foregone consumption.
When I see stuff by Murphy or some of those Naomis, my first thought usually is
“Do they really believe this or are they just having a laugh ?”
Climate Drivellists, I can imagine have it worked out : scientists make up some nonsense and the over educated middle class ( which includes most politicians ) convince themselves it is true. That is classic self hatred mixed in with some anti capitalism.
But this sort of thing is such obvious and disprovable hogwash that I wonder what is really in it for Murphy to propagate it.
Therefore, in the UK economy and in the economies of the world at large, most bank deposits, that is money in savings accounts, is created by the banks themselves by lending money into existence.
So, let me get this straight… I save $1,000 from my wages and deposit it in a personal savings account at my local bank. That $1,000 is not the result of my saving or depositing, but rather is the result of my local bank lending $1,000 to an individual or business that I have no knowledge of or affiliation with.
Right.
I’ve compiled a list of all the pontifications by Spud which are accurate and true. Here it is:
That’s all
Wealth is not the same as money. Money is merely the tape-measure used to compare the wealth of different individuals. Wealth is generated by those who produce more than they consume and *was generated before money was invented* by farmers who sowed crops and harvested more than they (their families/households) ate.
It is a misapprehension regrettably common among accountants that wealth and money are the same thing because accountants only look at money.
I can tell you that Murphy is wrong (I am not calling him a liar because I genuinely believe his incorrect statement is due to his chronic invincible ignorance) because I have known people who have never in their lives borrowed money from a bank and yet had positive wealth.
It’s from a series labelled ‘Economic truths’ – which is a genuine LOL moment
In other news, he’s clearly reliant on the SNP for patronage as he’s writing a response to the Reeves Statement in ‘The National’. I am guessing the money is running fairly desperately low now.
Since Captain Potato knows all money in the UK is made in one of two ways, how is it that he has so little?
He’s howling about winter fuel payments (£300 per year) being means tested.
As I have pointed out many times he has an annual income of c.£80k. What is he spending it on?
Sam,
It does appear to have wound up the left. Chris Dillow was having a whinge on Twatter claiming means testing is inefficient and it would be better to pay it out and then tax it back from the rich.
Means testing may have been inefficient 30 years ago but we have much better systems now.
I’d prefer we had cheap energy so that nobody but the worst off needed payments.
savings are foregone consumption.
Are they Tim? How does that work? All production must be consumed by definition. So someone must be doing the consuming. Or do you mean just consumption by savers?
So his main contention is that people borrow money at say 10% interest and instead of spending it on something useful, they deposit it in their savings account at say 4% interest.
Sounds fine to me. Dunno what you’re complaining about there, Tim.
Producton includes both consumption and investment goods. Savings are what get spent on the investment goods. So production still equals consumption. But the savers haven’t consumed what they’ve put their savings to, they’re the investment goods.
So called “savers” are really lenders.
They lend their money to the bank, which further lends it to whoever for whatever.
@ Charlie Oaks
Only some of them. Anyone who farms marginal land and uses his surplus income to buy fertiliser to upgrade the soil (or who grows “green manure” and ploughs it in) is not a lender.
I don’t know what economics textbook you’ve been reading but I suggest that you take your head out of it and look at the real world around you.
“Chris Dillow was having a whinge on Twatter claiming means testing is inefficient and it would be better to pay it out and then tax it back from the rich.”
Because nothing quite embodies efficiency as creating a bureaucracy to give people money, and another to take it back.
Brilliant by *snag*
A simple observation but which is missed by many.
I don’t understand John77’s point.
An office worker on a salary saves their surplus income. That money is indeed lent to a bank who reinvests it. That is why when too many people want their money back, banks fail.
A wise entrepreneur ( factory owner, farmer whatever ) reinvests their surplus income back into their business, to buy new equipment, hire new employees etc. if there is still a surplus then, it is deposited in a bank to earn interest.
I once worked for a company that had so much cash, 65% of its income was from interest payments. They actually stopped making things in some sectors, because it cost too much.
@ Ottokring
My point is that someone who invests his surplus (production minus consumption) in real physical assets is not a lender. There have been farmers doing just that since before monery was invented.
Anyone who parrots “saving is just depositing cash in a bank” has been reading the wrong book.
Producton includes both consumption and investment goods. Savings are what get spent on the investment goods. So production still equals consumption. But the savers haven’t consumed what they’ve put their savings to, they’re the investment goods.
I’d love to know how you separate “investment goods” (& services) from ordinary consumption. They come in a different colour? Sounds like illusionary monetary book-keeping to me.
The usual distinction. Inverstment goods are those consumed over a number of years. Therefore things like depreciation can – should – be logically applied. Consumption goods are those consumed this year. Not a perfect distinction by any means but still useful.
Point being Tim, it’s thinking like that ends up with MMT & other Richie bollocks. That the “investment” actually exists & therefore can be taxed. Liquidating an investment would require drawing on tomorrow’s goods & services. Which as of now don’t exist & whose existence in the future is not a given.
Inverstment goods are those consumed over a number of years.
How the hell would that work out? I invest in my friend’s company. He spends the money on plant & machinery. That’s all all happening in the present. It’s not spread over several years.
Can you not see how this sort of thinking leads to the shit the country has got itself in. During Covid the government paid desk jockeys to sit around at home & do fuck all. This has ended up as debt. Debt is a call on future production of goods & services. But the government didn’t magic future goods & services back into the past. The idle desk jockeys consumed other people’s goods & services in that present. Where else could they have come from? So is it any wonder you got inflation? There wasn’t any way of avoiding it. Consumption demand exceeded production supply. Presumably the debt has to be liquidated in future goods & services. Who is supposed to consume them? (of course the answer’s they’ll inflate the debt away so we’ll all be poorer & a smaller amount of g&s needs to be produced to liquidate the debt)
This is reality as opposed to illusory monetary book-keeping. Which is Richie bollocks on the hoof.
Here is a building. We made it this year. So, we used lots of this year’s production to make it.
We shall consume the building over the next 50 years. Use it a little each year that is. A 50 year lifetime is a 2% depreciation rate, which is what you do get on your taxes in the UK.
True. That’s how I look at assets. The idea of an “asset value” is a book-keeper’s fantasy. The value of any asset is its utility value in the present. It can have no other value because to liquidate it, it would have to be exchanged for goods & services. Where would they come from?
Point being, you can’t tax something that doesn’t exist. Neatly counters the argument for wealth taxes.
Tim, it’s a trader’s view of economics. Where every transaction must have a counterparty & everything essentially happens in the present. We don’t confuse futures with spot.
I would suggest it much closer resembles reality than much of economics.
@john77
Sorry, you’ve completely lost me. I don’t understand what your comment has to do with mine. Someone spending money on farm equipment clearly isn’t saving that money, they’re spending it.
@ Charlie Oaks
The guy is using the money he saved to buy farm equipment instead of lending it to the bank. I am not sure how that can be difficult to understand.
That is not the case for everyone but if it is the case for anyone, then your assertion at 7.58 is disproved.
It is well-attested that some farmers have expanded the area of cultivated land sown to crops and to do this they have set aside more of the seed from that year’s harvest unsold than they did the previous year. That is saving that does not appear in money accounts but it is clearly saving and they use the extra seed to sow extra acreage (that may require you to recognise that saving is not always expressed in cash terms).