Going out on a limb, I’d guess that most people who don’t work in the banking sector (and maybe even some that do!) don’t actually understand what “monetary policy” actually is. I certainly didn’t.
In The Production of Money, Ann Pettifor painstakingly spells out the need for the layperson to have a basic working knowledge of monetary policy, especially if we are to save our democracy from the despotism of global finance. She observes that the financial elite – and many of the academic economists who enable them – deliberately propagate a distorted view of the money system, as if it’s behaviour was an immutable law of nature, rather than a carefully rigged arrangement designed to maintain the dominant position of finance over governments, industry and workers.
She dispels the myth that credit is the loaning out of existing, hoarded wealth as if we still lived in the age of robber barons sitting on piles of gold. Money is debt, and credit is the production of debt from thin air. A calculated gamble that it will generate enough new value in order to pay itself back and more.
In a healthy economy, each unit of money conjured up goes towards generating value – by creating employment and enabling productive activity. Thus, the invented credit money has truly become real value.
In an unhealthy economy, dominated by the desire of financial speculators to generate profits at maximum speed with minimum risk, this credit will be used to inflate the value of assets and the ability to extract the highest rent or interest from them. After a given point, if enough of the money in the system hasn’t generated any value in the real economy via productive enterprise, then a simple default at the bottom of the chain of rent generating assets causes the entire scheme to collapse.
You won’t be surprised, then, to hear that Ann Pettifor is one of the few economists who predicted the great financial crash of 2007/8.
Monetary policy relates to the rules set by governments, implemented through a central bank, that control the creation of new money via the issuing of credit by private banks, as well as the rate of interest offered on government debt or loans.
Pettifor argues that the best way of directing monetary policy for the greatest social good is by making credit relatively hard to get, but very cheap (i.e. at low rates of interest). This “tight but cheap” money will mainly be dished out as loans to people with a believable plan to invest it in a productive fashion, and its cheapness will enable that productivity to more easily become profitable.
She argues that we live in an age were the opposite is true – in which we have access to “easy but costly” credit. This means it is easy to become indebted by using accessible credit for consumption or to purchase assets (mortgages and credit cards for example). Credit issued in this way directs people to invest in property instead of business or industry, so they can begin to charge rent immediately in order to pay off the interest, which is in itself a form of rent (you pay rent to the owner of your house, who pays rent to the owner of his debt, and so on). The growth generated by the extension of this easy but expensive credit enriches those with large asset portfolios, but does nothing to improve the economic situation of workers, entrenching inequality.
She also argues that the free movement of capital, which bankers have so very carefully branded as a progressive development for humankind, is nothing of the sort. It has in fact simply made it easier for financiers to invest their money anywhere in the world where rent seeking is most profitable. This means draining potentially productive capital from developed economies to exploit poor – or “sub-prime” – borrowers who can be charged inflated interest as security against their lack of collateral. This sub-prime borrower might be a poor homeowner in Detroit, or an entire nation without a sound financial and industrial infrastructure of its own. Alongside “tight, cheap credit”, dis-incentivising the free movement of capital by taxing it when it moves across borders (“capital controls”) will promote the reinvestment of a greater share of the wealth generated in a particular country into its own real economy, giving greater power to democracies to direct their own development for the greater good.
The Production of Money is a fantastic, informative guide for anyone on the left looking to boost their understanding of money, interest and credit – especially if they already have a fair grasp of more tangible economic activity such as taxation and public spending. However, it doesn’t go much in for visual metaphors or allegory. Although it breaks down complicated financial concepts to an extent, it assumes a fair bit of prior knowledge from the reader.
Pettifor does not hide that she is attempting rehabilitate the the theories of legendary British economist John Maynard Keynes and demonstrate their particular applicability in the post 2008 world. Neither does she shy away from attacks on “orthodox” or “classical” economics, which she regards as a great sham perpetrated by a combination of ruthless vested interests and academic useful idiots. This book is therefore quite a difficult read if you’re not already comfortable enough with the premises behind Keynesianism or Classical Economics to know why they need scrutiny! Although the book is concise, it could possibly use a few primer chapters at the beginning to get the reader up to speed on what it is they are learning to oppose.
If you’ve come to enjoy the good humoured, fatherly patience of economics heart-throb Yanis Varoufakis, Ann Pettifor’s no-fucking-around hardcore intellectualism is going to feel like a slap to the face. However, The Production of Money is no dry economics text book; it’s a furiously argued, passionate polemic, full of burning rage at the criminality of the financial class and a desperate desire to empower regular people with the knowledge to take back control of a society subjugated by the tyranny of global finance.