*Ann Pettifor* # Progressive Summary # Definitions Monetarist economist - believes that the growth of the economy is determined mainly by the money supply # Chapter Notes ## Chapter 1 - Credit Power The global finance sector exercises a power over society that is "despotic". Private commercial banks can create and distribute finance at a price (rate of interest) which they set. Whilst central banks issue only 5% of money supply, private commercial banks issue the remaining 95%. That's why monetarist economists who only target public money supply are not able to control inflation. Especially when this is coupled with a *deregulation* of the private banking sector. This is the blind spot of the ideology that equates public with bad, and private with good. In her first year of office, Thatcher presided over an inflation rate of 21.9 percent. She was only able to bring it down below the inherited rate in her fourth year. A sound banking system is a great benefit for society, as shown historically by Florence, then Holland, and finally in Britain with the formation of the Bank of England in 1694. Money isn't the result of economic activity; it creates economic activity. Poor countries with weak public financial institutions have to turn to domestic "robber barons' or international ones such as the IMF and World Bank. Money from these sources are lent at high interest rates, often unpayable by the economic activity generated by it. Most orthodox economists act on behalf of creditors, rather than in the interests of society. They provide justification for "easy" (unregulated) but "dear" (at high real rates of interest) credit. This is "the worst possible combination for society and the ecosystem as high and rising real rates of interest require high and rising rates of return from investment, from labour and from the earth's finite assets." Private bankers and financiers have been given two great powers: 1. The ability to create, price and manage credit without supervision or regulation. 2. The ability to manage global financial flows across borders, out of sight of regulatory authorities. > The experience of financial deregulation has shown that capitalism insulated from popular democracy degenerates into rent-seeking, criminality and grand corruption. ## Chapter 2 - The Creation of Money Orthodox economists view money as a commodity, akin to a tangible asset like gold or silver. As such, it can be saved and accumulated, and then loaned out. The cost of money (or its interest rate) is determined by the market's demand for it. But Karl Polanyi called money a "false commodity". Commercial bankers have loaned money into existence since before the founding of the Bank of England in 1694. Back then, they did this by writing in ledgers using fountain pens. Today they enter numbers on a computer keyboard. This understanding of money has been developed successively by John Law (1671–1729), Henry Thornton (1760-1815), Henry Dunning MacLeod (1821–1902), and John Maynard Keynes (1883–1946). The word 'credit' is based on the Latin word *credo*: 'I believe'. Rather than a commodity, money is a social construct based on trust. If there is low trust, then the cost of money (in the form of collateral or interest rates) will be higher. As John Law argued in 1705 (https://la.utexas.edu/users/hcleaver/368/368LawMoneyandTradetable.pdf), money is not the thing *for* which we exchange goods and services, but *by* which we undertake such exchange. An analogy can be made to a credit card. When we pay with a credit card, we don't actually give our card over. Instead, the card is a measure of the amount of trust between individuals. If a banker doesn't trust us, they might not even give us a card. If they trust us a lot, they might give us a gold or platinum card, and we would enjoy greater purchasing power. In 2014, the Bank of England wrote a series of articles in support of this view: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy # Quotes # References