Over ninety percent of money in circulation today isn’t cash; it’s electronic money.
The money in your bank account, the money you spend on credit and debit cards, isnot minted or printed by any government. Unlike notes and coins, this money is created, out of thin air, whenever a bank makes a loan. In doing so, they increase the balance of the borrower’s account, thereby creating new money for them to spend.
As Paul Tucker, former Deputy Governor of the Bank of England puts it: “Banks extend credit by simply increasing the borrowing customer’s current account…That is, banks extend credit by creating money.”
In the hands of private banks, this new electronic money is often spent inefficiently; inflating house prices and share prices,rather than funding new investments. If a government was to step in, they could usethis same money to reduce deficits and fund real investments, at no extra cost to the taxpayer.
It’s a major opportunity, but it receives little public scrutiny. There’s a problem. Tell people that most money is created by private banks, as if by magic, and they’ll probably think you were mad! As the economist John Kenneth Galbraith once put it, “The process by which banks create money is so simple that the mind is repelled.”
It’s a dilemma. The truth is simply too unbelievable to believe.
In his new book, Money Power Love, Joss Sheldon might have just found a solution. Set in the early 1800s, his novel tells the story of how British goldsmiths became bankers; lending out the gold they held in their safes, before creating promissory notes and lending those out instead. Those notes were seldom cashed, they began to be spent as if they were in fact gold, and so the early bankers created many more notes; new money, which funded the industrial revolution and the expansion of what would become the biggest empire in the world.
Modern day bankers are simply following in the steps of those early goldsmith-bankers; creating electronic money where their predecessors created paper money. It’s a case of history repeating itself.
Money Power Love is a riveting tale in its own right, but Sheldon takes things to the next level. He creates a Dickensian universe of squalor and vice, in which three orphans experience three different childhoods, and subsequently spend their lives searching for three different things; money, power and love. This, then, is also a love story, replete with the lyrical flourishes of Gabriel Garcia Marquez, and a story of mankind’s search for power.
Above all else, however, it’sa work of art. Sheldon creates a world in which every scent is pronounced and every scene is painted with exquisite colour. It’s a tale of personalities, which explores the very extremities of human behaviour, and it’s a lesson from history which takes the reader from the heart of London to the furthest reaches of the British Empire. Moreover, it’s a lesson that’s more relevant today than ever before.
So, if you ever tell anyone that private banks create over ninety percent of money, and that person gives you a strange look, just pass them a copy of Sheldon’s new novel and rest easy, sure that his words will do the rest.