Where does money come from?

A comment by Alan Ecob

Assoc Prof Philip Lawn’s article (ERA Review, Vol 5, No. 2) is a pleasantly easy-to-read account of how central governments may create money out of nothing. But they are not the only ones who may do this. In this issue (p.29) Lord Adair Turner notes “the ability of fractional reserve banks simultaneously to create private credit and private money”. This doesn’t require that all such banks be involved. Just two ‘big-hitters’ can do it, exchanging 25-year term derivatives to yield increased present private money, with the increased debt run out into the never-never (and then again) and off balance sheet.

Also in this issue in Susan George’s article on Concentration is reportage of BG&V’s conclusion that a mere fifty Transnational Corporations exercise something approaching 40% control over the global total of 43,000 on their database (p.26). Of the fifty, only two are involved with the real economy. The rest are banks and financial enterprises. These 48 would have to go close to comprising what conceptually at the holding (consolidated accounting) level is the global financial sector.

Is it not obvious that these 48, all functioning in accordance with the same policy/profit paradigm, effectively determine what happens with all the major world currencies – creating increases, de-leveraging, affecting exchange rates, etc. – all in their perceived best interests, negotiating with each other where necessary to avoid upset to their premium positions? In relation to this reality, the most that individual governments can do is to operate within the limits that become available/possible to them.

Alan Ecob is an ERA member living in NSW