Heroes Not Zombies

When we think of money we tend to think of coins, like these ones in this fountain. Or notes. But coins and notes are just cash and most people don’t receive their income as cash, nor do they pay most of their bills with cash.

Instead, nowadays, most money is electronic. It’s a number on a spreadsheet or a computer ledger. Isn’t that strange? Now that most money is just information on a computer it’s easier to see that money is simply a human invention – a social agreement. It doesn’t exist. Apart from cash, which is a tiny proportion of the money in bank accounts and funds around the world.

Weird, huh?

I got thinking about this the other day when Mark Carney announced at the COP26 that there was “130 trillion dollars of capital committed to net zero”. Well I mean what on Earth does 130 trillion dollars look like and where is it exactly?

And, more, if there is 130 trillion dollars sitting somewhere then why are children dying of hunger? Why isn’t there decent health care and education for everyone? Why doesn’t everyone have a home?

Well I’m no economist and I’ve read criticism of this 130 trillion dollar claim but that still leaves me thinking about money. And maybe you’re wondering about it too.

I read Stephanie Kelton’s The Deficit Myth last year and started listening to the MMT Podcast (MMT is Modern Monetary Theory). I don’t think about money the same way as I used to do any more!

I’m not going to try and tell you all about MMT or even attempt to discuss economics but when I looked at this photo again today the question posed by the MMT folk popped into my head again…..

Where does money come from?

When I think about this, the first thing I think about is cash. Coins are minted and notes are printed by the government. They don’t come from anywhere else. Anyone else creating money would be guilty of fraud. And as most money is now just numbers on computers, where does that come from? The government too.

Wait, if the government wants to spend money it just has to decide to do it? It just tells the Central Bank to put a certain number into a certain computer? Seems that’s pretty much true – at least for “fiat currencies” – ones created by governments eg US dollars, U.K. Sterling, Japanese Yen etc.

So the government doesn’t need to get money from anyone else? Not borrow it, or rake it in through taxation?

Can that be right? Well, only the government can create money so it seems they just do that every time they decide to spend something….

But there must be a limit? There is. In fact there are several. That’s what Stephanie Kenton’s book is about. There are limits. Inflation is one of them. If there is too much money in the country you get inflation. If that happens the government can take some away through taxation.

Whoa! That’s where I suddenly stopped seeing the world the same way! I thought the government needed to get money through taxes to tackle poverty, inadequate health and social care, poor housing etc. But no, they don’t get money from tax. Tax takes money OUT of the system. Spending puts it in.

Ok, enough for today. But, seriously, check this stuff out. Read The Deficit Myth or listen to a couple of introductory episodes of the MMT podcast, or check out MMT somewhere else.

I swear you won’t answer the question “where does money come from?” the same way ever again.

Now, how about we get on with deciding what problems we want to address? Turns out money is not the problem,