The Green Party of England and Wales really knows how to stake out some fresh territory in their national politics! At the autumn conference, the Greens adopted a resolution calling for “a programme of reform to remove the power to create money from private banks, and to fully restore the supply of our national currency to democratic and public control so that it can be issued free of debt and directed to environmentally and socially beneficial areas.”
Bold thinking! The Greens explain why the existing banking system is so pernicious:
"The existing banking system is undemocratic, unfair and highly damaging. Banks not only create money, they also decide how it is first used – and have used this power to fund financial speculation and reckless mortgage lending, rather than to finance investment in productive businesses. Through the interest charged on the loans on which all credit is based, the current banking system increases inequality. It also regularly causes economic crises: banks create and lend more and more money until the level of debt becomes unsustainable, boom turns to bust, and the taxpayer bails out banks that are ‘too big to fail.’ Finally, the need to service the growing mountain of debt on which our money is based is a key driver of unsustainable economic growth that is destroying the environment."
The right to create money and profit from it is known as seignorage. Banks currently enjoy this right and exercise it through their lending, which creates most of the money in circulation. Governments have effectively let banks privatize control of the money supply. In so doing, governments have forfeited the opportunity to provide debt-free lending to support productive enterprises and public needs as opposed to fueling boom-and-bust speculation and relentless economic growth that destroys the environment.
Reclaiming seignorage for public benefit has been a serious idea among many progressive economists for years. A notable figure in this regard is James Robertson, the founder of the new economic foundation in Great Britain, in 1986, who has championed this issue for years. Robertson’s most recent book Future Money explains how re-gaining public control over how new money is created and circulated could result in “an annual savings to all citizens of the UK of £75bn, and second in a one-off benefit to the public purse totalling £1.5bn over a three-year transition period.”
Austerity budgets could be made moot if the public were to reclaim the right of seignorage for public benefit. As it now stands, some 97 percent of new money in the UK is created by banks through lending, resulting in enormous profits in the form of interest. Between 2004 and 2010, British banks created £1.1 trillion in new money. Writes Robertson: “Had the Government been able to create this money instead, then it would have been able to repay 80 percent of national debt of the UK Government.”
Needless to say, the idea of reclaiming public control over the public money supply is anathema to bankers – and mainstream politicians beholden to the finance sector to finance their campaigns won’t give it the time of day. Which makes the Green Party’s willingness to embrace monetary reform brave and visionary.
As Robertson explains, public seignorage would allow us to avoid “the hidden tax that we all pay to commercial banks as interest on the bank account money in circulation.” And we could “profiting from the one-off increase in public revenue by converting the money supply now created by commercial banks as debt into money created free of debt by the Bank of England. In the short term this would relieve the unjust ‘austerity’ now being inflicted on the poorer sections of society. In the longer term it would create a fairer and more efficient economy for everyone in a 21st-century society.” (original emphases)
A thoughtful background paper outlining the Green Party’s banking reform motion can be found here (pdf file). Another useful overview of this issue is Pat Conaty’s review of Roberton’s book in the Resurgence website.
Andrew Waldie, of Kent Green Party and proposer of the motion, noted that “in voting for this motion, the Green Party has put in place the third part of a trinity of radical policies to finance the move to a post carbon and equitable economy. Public credit creation joins the Citizen's Income and Land Value Tax as the three jewels in the crown of our economic policy.”
If only we saw more bracing leadership like this in American politics!