Since 2009, the Bank of England has created £375 billion of new money and given it to the banks. * The banks have been sitting on most of this money (or investing it somewhere else) while companies that need to expand their operations have been starved of credit.
Companies - especially manufacturers - produce real, tangible wealth, as do farmers (the men who feed us all), but what do banks do? In the modern world, banks do many things, but principally a bank is a bookkeeper and a strongroom. These were the original functions of banks. Can a bank be said to create wealth? Anyone individual or institution that provides goods or services can be said in a sense to create wealth, even if it does not actually produce anything tangible. A dentist or a heart surgeon can be said to create wealth. Most of us visit the dentist extremely infrequently, and if we are lucky we will never need the services of a heart surgeon, but each of these highly trained and qualified professionals provides an invaluable service, and is highly remunerated on this account. How highly trained is a bookkeeper or a strongroom owner?
While banking is a necessary service in the modern world, something that is in demand every day, a banker is a lot less important than a farmer or even a grocer, because if push came to shove, we could all do our own bookkeeping. Why then should bookkeepers have the power to create credit out of thin air at the stroke of a pen? Clearly, this power should belong to producers. In practice, this is something that can and should be delegated to, or at least overseen by, the government.
Let us not forget either that massive wealth producer the Internet, an entity that should have not simply the right but the duty to create its own money and distribute it to its many smaller wealth creators.
* The figure used in a recent news article, £325 billion, is accurate in context, but the current programme of Quantitative Easing started early in 2009. Check this article for a brief explanation of how QE actually works.
[The above article was first published as a blog on Digital Journal, October 1, 2012 as Purchasing Power Belongs To Producers, Not Book-Keepers.]
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