Ann Pettifor says £10 notes are not a form of money.
Summary. A significant proportion of Ann Pettifor’s new book “The Case for the Green New Deal” is (strange to relate) devoted to banks, money etc. She makes the very odd claim that where money is created and distributed by a government and its central bank (CB), but not in exchange for anything (e.g. government debt as per QE), then the relevant money is not money. I.e. she appears to think helicopter drops would be useless because the money “dropped” would not be money.
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Ann Pettifor’s book, “The Case for the Green New Deal”, was published last year. I’m all for the GND, but the book contains a fair amount about money and banks, an area where she claims to be an expert given that she also wrote a book entitled “The Production of Money”, published in 2017. Unfortunately her ideas in this area are questionable, to put it politely.
There are numerous errors on the subject of banks and money in “The Green New Deal”, but I’ll concentrate here just on a few that appear in her Ch5 under her heading “Against Modern Monetary Theory”. (I actually dealt with the mistakes in “The Production of Money” recently on my own blog).
Her first mistake is in the 3rd and 4th paras of the MMT section where she claims MMT arose after 2009. Actually MMT started around ten years earlier! If any one individual started MMT, it was Warren Mosler, and he gives the starting date as 1993 here.
No such thing as debt free money?
Then a few paragraphs later she claims “There is no such thing as debt free money.” Well I appreciate that £10 notes seem to claim the Bank of England owes the holder of such notes something. Those £10 notes say “I promise to pay the bearer on demand the sum of £10.”
Unfortunately that “promise” is totally worthless. It’s simply a left over from the days (over a century ago) when banks really did have to supply holders of bank notes with gold in exchange for bank notes if the holder wanted. But you certainly won’t get any gold from the BoE in exchange for your £10 notes nowadays. Ergo there is not debt there! Simple.
The best description of the nature of central bank issued money was probably given by Warren Mosler when he said that central banks and the money they issue are much like an umpire in a tennis match and the points the umpire awards: that is, the points are assets as viewed by the players, but are not a liability as viewed by the umpire. Likewise, base money (i.e. central bank issued money) is an asset as viewed by the private sector, but is not a liability as viewed by the central bank.
£10 notes are not money?
Then a few paragraphs later comes this passage.
“The ‘promise to pay’ (made by an individual, a firm or a government) is underwritten by the offer of collateral as guarantee of repayment, the signing of a contract that promises to repay, and the agreement to a rate of interest on the loan. Only then can a commercial bank or central bank use their extraordinary powers to deposit new money (which is always and everywhere credit) in the borrower’s account.”
So she’s saying a central bank (e.g. the Bank of England) cannot create and supply everyone with more money (in physical form (e.g. £10 notes) or digital form) unless recipients of that money have first deposited collateral at the central bank! I.e. she is saying helicopter drops, as conventionally understood, are not possible! I think a good 95% of economists would disagree with that!
And that’s no one off: she says much the same in the next para, which reads, “QE involves the exchange of assets and liabilities between the bank and its clients. Both central and commercial banks create credit ‘out of thin air’ but always in exchange for collateral, a contract and a rate of interest fixed over a time period. The creation of debt-free money — money created without a) the exchange of deposits for collateral, b) a contract promising to repay, at c) a certain rate of interest, over d) a given period of time — would not be QE. It would not even be money, as understood by all those that use money.”
I.e. she is saying that if the BoE distributed £10 notes to everyone (or digital money) as part of a helicopter drop, those £10 notes would not be a form of money.
Well there’s a slight problem there, namely that money is defined in every dictionary of economics as something like “Anything widely accepted in payment for goods and services or in settlement of a debt”. Now £10 notes are accepted by about 98% of shops, ergo £10 notes are a form of money! QED. End of. Moreover, £10 notes and other BoE issued money are what’s called “legal tender”: that is, creditors are legally obliged to accept that money in payment for goods and services. Thus BoE issued money is the most “money like” money there is!
Conclusion.
While Ann Pettifor should be congratulated for her promotion of the Green New Deal, her grasp of money, banks and so on leaves a bit to be desired. Thus all those who she has criticised on the subject of banks and money over the years (e.g. Positive Money, MMTers, advocates of “People’s Quantitative Easing”, advocates of helicopter drops etc) can now take her views with a pinch of salt.
