Merry Christmas to all!

(card courtesy Hallmark)

I have been reading this article/blog post The Curse of Tina by Adam Curtis of the BBC – it’s a long article and there are several videos in the post, making it a long read. What led me into the article was the discussion of policies put forward by Monetarists which led to a damage of the British economy in the 70s and the 80s. The IEA – Institute of Economic Affairs – called Monetarism “scientific” (!) and persuaded the government in adopting its policies. Overall, the article gives a good glimpse of failed policies over so many years. (Nevermind the author’s mistaken belief that there is no alternative)

Of course, the best source for this is Nicky Kaldor’s The Scourge Of Monetarism (Oxford University Press, 1982). Kaldor had a supreme understanding of banking and the endogenous nature of money. In the book, he wrote:

As it is, a highly developed banking system already provides such facilities on an ample scale, since it is prepared to accommodate the public’s changing demand between different types or financial assets by altering the composition of the banks’ assets or liabilities in a reverse direction. If the non-banking public wishes to switch its holding of gilts for interest-bearing bank deposits, the banks are ready to supply such deposits at the minimum of inconvenience, and at the same time to place their surplus funds into the gilts which were previously held by the public. Similarly the banks provide easy facilities to their customers for switching balances on current accounts into interest-bearing deposit accounts, or vice versa. Hence, while the annual increment in the total holding of financial assets of the private sector (considered as a whole) is nothing more than the mirror-image of the borrowing requirement of the public sector (in a closed economy at any rate), neither the Government nor the banks can determine how much of this increment will be held in the form of cash (meaning notes and current deposits) and how much in the near-equivalents to cash (such as interest-bearing demand deposits) or in various forms of public sector debt. Thus neither the Government nor the central bank can control how much or the total financial assets the public prefers to hold in the form of ‘money’ on one particular definition or another.

*I initially thought Adam Curtis as saying that there is no alternative which he was not – he probably just meant that according to politicians there is no alternative. I thank Philip Pilkington in pointing this out).