Since the Credit Crunch of 2008 and the accompanying depression, a flood of ideas has appeared on the internet and in discussion forums of all kinds claiming that, like a stage magician, high-street banks have been creating credit, money or even wealth out of nothing. This, it is claimed, has led to the continuous enrichment of fat-cat bankers at the expense of everyone else. Anarchists, conspiracy theorists, reformists, academics, professional economists and those simply looking for someone to blame for the economic collapse have all taken up the idea and elaborated it into a number of more-or-less confused theories about the way banks operate. According to one such theory, bankers were guilty of pursuing a lucrative but unsustainable policy of ‘credit creation’ in the knowledge that when the crunch inevitably came they would be seen as ‘too big to fail’ and governments would bail them out. According to many, ‘credit creation’ by banks is not just the cause of the banking crisis, but the origin of the current slump in the economy as well. Others, taking a wider view, argue that it is the cause of longer-term, unsustainable growth.
Whatever their differences, all these theorists believe that regulation of the banking system and the suppression of ‘credit creation’ will restore the good times we experienced before the sudden catastrophic plunge into rising unemployment, forgetting in their enthusiasm that those times were far from good for a great number of working people. Most believe that it will restore control of the economy, overlooking the fact that the anarchy of the market has never submitted itself to control by any agency.
That such ideas should take hold now is perhaps not surprising: similar ideas arose and became popular in the years following the last great financial crisis: the stock market crash of 1929. They provide an easy but deceptive explanation of what has caused the current chaos in the economy, and suggest an easy remedy. They also point the finger of blame at the hated bankers. But where do they take us - really? By locating the cause of our economic and social ills in a relatively secondary facet of the capitalist economy - the activities of the banking system - they fail to address the real source of our problem, which lies deep in the capitalist system itself. They take us, yet again, down the futile road to reformism. No regulation of banking activity can possibly remove the exploitative nature of capitalism’s system of wage labour or eliminate the conflicts on which the system rests. While capitalism exists, the satisfaction of human need can never be the aim of productive activity. Nor can any progress be made to eliminate the system’s huge differences in wealth or provide social fulfilment for the vast majority of humanity. Credit creation theories can only provide us with more of the same. They are, at most, another diversion from the urgent need to replace the capitalist system with a more genuinely social, free and fulfilling society.