Here’s what they said:
On Thursday 20th November 2014 over 30 MPs took part in a debate in the House of Commons on money creation and society. This was the first time in 170 years, since the Bank Charter Act in 1844, that the topic has been fully debated.
Money creation affects almost every aspect of our lives, and is directly connected to almost all public policy, including public and private debt levels, house prices, and rising inequality, but it’s very poorly understood. A recent poll found that 7 out of 10 MPs believed that only the government can create money[1], when in fact 97% of money is created by banks as they make loans, as recently confirmed by the Bank of England[2]
MPs acknowledged the problem of their own lack of understanding of money creation [1]:
Peter Lilley MP stated that “A lot has been made of the ignorance of Members of Parliament of how money is created. I suspect that that ignorance…… explains many things, not least why we entered the financial crisis with a regulatory system that was so unprepared for a banking crisis.”
Zac Goldsmith MP was the first to admit at the debate that he does not fully understand the system, stating, “I suspect that most people here would be humble enough to recognise that the banking wizardry we are discussing is such a complex issue that very few people properly understand it.”
However there was wide understanding by MPs in the debate that banks create new money whenever they make a loan, as confirmed by the Bank of England recently [2] and a wide agreement on this being a problem:
Steve Baker MP said “Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”
Peter Lilley MP set out the process by which money is destroyed: “By contrast, when a bank loan is repaid, that extinguishes money; it disappears into thin air”
The negative consequences of this monetary system and current monetary policy were highlighted, including: house prices, inequality, lack of productive investment, and the environment.
Michael Meacher MP stated that “banks produce too much mortgage credit in a boom ...which produces a housing bubble and raises house prices.”
Steve Baker MP stated that “Quantitative Easing —is a deliberate policy of increasing the wealth of people who are older and wealthier.”
Austin Mitchell MP pointed out that “Only 8% of the credit created [by banks] has been lent to new businesses.”
The disconnect between the ecological and economic system were highlighted by Zac Goldsmith MP when he commented on “the extraordinary situation in which it is possible to imagine economic growth even as the last of the world’s great ecosystems or the last of the great forests are coming down. The economy is no longer linked to the reality of the natural world from which all goods originally derive.”
Cross-party support came for a proposal to set up a monetary commission:
Michael Meacher MP, Labour MP for Oldham West and Royton ended by calling on “the Government to set up a commission on money and credit, with particular reference to the potential benefits of sovereign money, which offers a way out of the continuing and worsening financial crises that have blighted this country and the whole international economy for decades.”
Zac Goldsmith MP Conservative MP for Richmond Park stated that “The time has come to establish a monetary commission and for Parliament to become much more engaged [in this issue].”
Additionally Steve Baker MP outlined his support for “proposals from the Bank’s chief economist, Andy Haldane, [to] commission ‘anti-orthodox research”
This was supported by the Government Treasury Minister Andrea Leadsom MP, who stated that “Andy Haldane has said the Bank itself will be looking at, and encouraging, the exploration of alternative views.”
Positive Money applauds the MPs willing to attend the debate and speak on money creation and society. Executive Director Fran Boait stated, “Thousands of our supporters have put in time to ensure that this important debate was a success. We don’t expect MPs to fully understand how the money and banking system works, but we do expect them to be concerned about it. It was fantastic to see the MPs engage in the conversation, and acknowledge that the current system is causing more problems than it is solving.”
ENDS -
CONTACT:
Please contact Fran Boait, 07843382034, 0207 253 3235, [email protected]
[1] 100 MPs were polled through Dods Monitoring in July 2014. MPs were asked to read a number of statements and indicate whether they were true or false. They could also select “Don’t know”.
In response to the statement “Only the government – via the Bank of England or Royal Mint – has the authority to create money, including coins, notes and the electronic money in your bank account.”, 71% said this was true, 20% said it was false (the correct answer) and 9% said they didn’t know. There was no significant difference between the parties.
In response to the statement “New money is created when banks make loans, and existing money is destroyed when members of the public repay loans.”, only 12% of MPs gave the correct answer: true. 64% of MPs said this was false, while 24% said they didn’t know.
Total responses came from: 39 x Conservatives; 45 x Labour; 10 x Lib Dems; 6 x Others. The full results can be found here: http://bit.ly/1qTZHHa
[2] The Bank of England released two articles explaining the money creation process - “Money in the modern economy: An Introduction” and “Money creation in the Modern Economy” - in their flagship Quarterly Bulletin of March 2014: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1.pdf
Positive Money is a movement to democratise money and banking so that it works for society and not against it. Founded in 2010, we work to raise awareness and understanding of the fact that most of the UK’s money is created by banks as they issue loans. Our research has resulted in two books (Where Does Money Come From? and Modernising Money). In March 2014, the Bank of England released two articles in its Quarterly Bulletin confirming the explanation of money creation that we outlined in Where Does Money Come From?
Our proposals for reforming the creation of money were picked up by Financial Times chief economics commentator Martin Wolf in his article “Strip banks of their power to create money” (April 24th, 2014)
We have over 37,000 followers, 30 groups around the UK and 17 international partner organisations. The campaign is coordinated by a small London-based team. Our Board of Advisors includes economics professors, authors, entrepreneurs and professionals from the financial industry.