The Pound and the Fury. Why Anger and Confusion Reign in an Economy Paralysed by Myth. By Jack Mosse. 168 pages. Manchester University Press, 2021.
To explain why ‘for decades, our economy has failed to work for ordinary citizens’, Mosse had the idea of asking various groups of people what they thought the ‘economy’ was and how they thought it worked. He interviewed people on a nearby estate, people working in asset management, civil service economists, and journalists on a magazine advising small investors. It worked and makes interesting reading. Those in the estate thought that the economy is a conspiracy of the rich and powerful to keep them poor; the asset managers and civil servants saw it as ‘an autonomous natural entity’; the financial journalists came across as simple conmen.
The trouble is that Mosse himself is confused about economics, as revealed by his comments on the answers and in his final chapter on ‘Demythologising the economy’. Early on (p.27) he states his belief that ‘money can be magicked up out of thin air’ by banks. In fact, some of those he interviewed had a more accurate understanding than he does.
He criticises the asset managers and the civil servants for ‘reifying’ the economy ‘as an entity operating according to its own autonomous logic‘ with the result that ’human actors are understood as merely complying with the irresistible base force that drives the economy’ (p. 60-1).
Actually, that is not a bad description of how the capitalist economy does operate. Human actors (capitalists, workers, governments) do have to submit to the logic of the system in the end. The asset managers and civil servants misunderstand the system as an expression of human nature. Mosse calls seeing the economy as an autonomous natural force ‘reifying’. The word Marx used was ‘fetishism’ – humans attributing autonomous power to and being dominated by something that ultimately they create. Humans could cease to be dominated by the outcome of their activity if they changed that activity from producing wealth for sale on a market with a view to profit to producing directly to satisfy people’s needs. This is possible only on the basis of the common ownership and democratic control of productive resources; with this, the ‘economy’ would then cease to operate and humans would be in control of what they produce.
Mosse’s alternative proposal is just to tinker with the banking system while leaving the rest of capitalism unchanged. He attributes to private banks a power which they do not possess. When he says that ‘governments, as well as private banks, create money out of nowhere’, he is only half right. The government, normally via its central bank, can create money, or at least money-tokens, at will (but this will have consequences). Banks cannot. They can only lend what they have themselves borrowed; they don’t create new money, they only redistribute money that already exists. The myth that they can create money out of thin air arises because modern economics has come to define making a bank loan as ‘creating’ money. Banks do make loans of course but not out of thin air.
Having two different definitions of money creation only causes confusion of which Mosse is a victim. He needs to explain, if banks can ‘magic money out of thin air’, how come that during the crash of 2008 they had to be bailed out by the government? Why did they not use their supposed ability to create money to bail themselves out?
He gets himself into another contradiction when discussing one of the reforms proposed by Positive Money – ‘to ban private credit creation’ (p. 137). This turns out not to be stopping banks lending altogether (as it ought logically to mean if banks create money whenever they make a loan), but to allow them to re-lend only money deposited with them. This would mean that they would no longer be able to use the money market to borrow money from other banks and financial institutions to re-lend. Mosse concedes that this ‘draconian policy’ would provoke ‘a huge immediate shock effect on all kinds of economic activity, which would dwarf any previous banking crisis’. Yes, it would.
Seeming to realise the impracticality of that particular money reform, he turns to another funny money theory, so-called ‘Modern Monetary Theory’. MMT is based on the fact that governments do have the power to create money-tokens out of nothing. It argues that all a government has to do is to decide what it wants to spend money on and then create the money; governments don’t really need either to tax or to borrow. Given certain unrealistic conditions a government could perhaps do this but the most likely outcome would be Zimbabwe-style roaring inflation.
It is a pity than Mosse has let himself be influenced by monetary reformers and so ends up propagating confused and confusing myths himself. Despite this, the chapters – four-fifths of the book – where he interviews people are worth reading as good reporting.
Adam Buick
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