Last week parliament debated money creation for the first time in 170 years. The debate is worth reading in full on Hansard if you have an hour or two.
This essential topic is creeping into the mainstream, thanks to the efforts of Positive Money, the New Economics Foundation, and the Cobden Centre, amongst others. The debate was a real landmark – hopefully representing the start of widening public engagement and education on the subject.
The good news is that it was a cross-party backbench debate, supported by Conservative, Labour, Green and UKIP members.
The bad news is that it was poorly attended, despite being of fundamental importance. It is remarkable that so few members of the public or politicians understand what money is and how it is created.
Labour MP Austin Mitchell summed this up:
This House and the Government are obsessed with money and the economy, but we never debate the creation of money or credit, and we should, because, when it comes to our present economic situation and the way the banks and the economy are run, that is the elephant in the room. It is time to think not outside the box, but outside the banks; it is time to think about the creation of credit and money.
Conservative MP Zac Goldsmith said:
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. If Members of Parliament do not really understand how money is created – I believe that that is the majority position, based on discussions that I have been having – how on earth can we be confident that the reforms that we have brought in over the past few years are going to work in preventing repeated collapses of the sort that we saw before the last election? In my view, we cannot be confident of that. The problem is the impulsive position taken by ignorant Members.
SDLP MP Mark Durkan pointed out the ludicrousness of parliament having
feng shui arguments on the regulatory furniture when there are fundamental questions to be asked about the very foundations of the system.
There was wide understanding from the MPs present that banks create money when they make loans, and this was acknowledged by the Economic Secretary to the Treasury Andrea Leadsom.
However this understanding needs to reach decision-makers and the public. It ought to be taught in schools and universities. Zac Goldsmith and others voiced their support for establishing a monetary commission to examine the pros and cons of our banking system and potential alternative models. As Labour MP Michael Meacher said: “The question at the heart of the debate is who should create the money?” We urgently need to examine that question rigorously and meaningfully before the next financial crisis hits.