Money is just an IOU
A recent paper from the Bank of England corrects the mainstream view about money: in the end, it’s just an IOU. Banks, both private and central ones, create money out of nothing, as long as there is someone who wants to borrow it. Or who can be convinced to borrow it. It is as simple as that.
David Graeber discusses the importance of this statement for the theoretical basis of austerity in a recent article on the Guardian
http://www.theguardian.com/commentisfree/2014/mar/18/truth-money-iou-bank-of-england-austerity
This connects nicely to the discussion on money and markets we had quite a long time ago (week 4 HT), and social scientists have been discussing this matter for a long time (Hart 1986). But probably some bankers and businessmen had been aware of how money is created long before anyone out of the foundry, as this speech reportedly made at the University of Texas in 1927 by Sir Josiah Stamp (businessman and director of the Bank of England 1928-41), seems to suggest:
‘The bankers own the earth. Take it away from them, but leave them the power to create deposits, and with the flick of a pen they will create enough deposits to buy it back again. However, take it away from them, and all the fortunes like mine will disappear.’
Davide
