credit money : Nigel Dodd ,Geoffrey Ingham, Ann Pettifor

Geoffrey Ingham “The Nature of Money”,

“This excellent book reveals a sounder grasp of credit-money than many contemporary heterodox economists and almost all orthodox monetarist economists.”

Ann Pettifor in OpenDemocracy (see below)

I agree. This is one of the best books about money I have read. And I have read a few. Like one of my previous favourites, Nigel Dodd’s“The Social Life of Money”, it is written by a sociologist and way beyond the intellectual radar of your average “money is neutral” economist (see Pettifor below on Krugman)  But whilst Dodd surveys the field far and wide Ingham goes wide and deep, especially into the intellectually embarrassing history of economics’ pronouncements on money.

Dodd’s  presentation of Ingham serves as a good introduction but arguably suffers from Dodd’s “Simelian bias”? Reading Ingham as just a prominant neochartalist does not do justice to the magisterial scope and interdisciplinary originality of his work. (see Dodd and Jakelja below).   Quibbling over the “correct” conceptualisation of money versus currency looks like the sort of  debate banks would be happy to sponsor as it detracts from the issues of real power in the real political economy. 

Much more relevant is the critique that in “… his analysis of the money market and the production of credit-money, Ingham, surprisingly, argues a straightforward orthodox case…” just as he effectively endorses the absurdly paradox “credit doesn’t matter” consensus on the causes of inflation in the 1970’s.  (see Pettifor below)   CAW 01/2020

A pertinent and constructive critique can be found in  Ann Pettifors’s  excellent review article on Ingham’s “Capitalism” :

“Geoffrey Ingham is one of a handful of academics not blinded by the smoke and mirrors of today’s monetary ‘alchemists’. His excellent The Nature of Money  reveals a sounder grasp of credit-money than many contemporary heterodox economists and almost all orthodox, monetarist economists.

Just as with The Nature of Money, Ingham’s Capitalism adds a great deal to our understanding of the systemic nature of capitalism.  Like the distinguished sociologists on whose shoulders he stands, Ingham draws on those theorists whose work he “found to be most valuable”. They are Adam Smith, Marx and Weber, but also Joseph Schumpeter and John Maynard Keynes – who are included he writes,

“not only for their seminal heterodox contributions to the economic analysis of capitalism, but because this heterodoxy is implicitly ‘sociological’ ”. (ibid. p.2)

This book is therefore a must-read for both sociologists and economists; indeed for anyone wanting to deepen their understanding of the systemic nature of today’s global financial crisis.

However, while Ingham’s review of heterodox analyses is illuminating, it is, by his own admission, not comprehensive and, I will argue, includes a number of flawed analyses which are the subject of current debate, and discussed in some detail in this review.

First while acknowledging that capitalism’s hallmark is the “elastic production of money” he then retracts, and suggests that private credit-creation is constrained by the practice of ‘fractional reserve banking’ – a form of commercial banking probably not practised since the founding of the Bank of England in 1694.  Again this is the subject of heated debate within the economics sphere, so more on the subject below.

Second Ingham, like many economists, blames the inflation of the 1970s on the ‘the power of monopoly capital and their labour forces to mark up their respective prices’. (p.86)  This analysis appears to discount the role played by the City of London in creating excessive credit – ‘too much money chasing too few goods and services’ – after Chancellor Anthony Barber’s assault on banking regulation in 1971.

Third, by his own admission, Ingham arbitrarily excludes from his list of heterodox theorists a number of 20th century thinkers who have greatly illuminated our understanding of both the systemic nature of capitalism but also its dutiful hand-maiden, neoliberal economic theory. While I respect his right to choose the most influential, the inclusion of progressive 20th century thinkers would have added considerable value to this study of capitalism.

These disagreements are not new, and I am not the first to raise them. However given the extent to which society, political parties and progressives have a ‘blind spot’ for the admittedly opaque role played by private bankers in the economic life of nations, I believe it important to raise further discussion about ‘fractional reserve banking’ and the causality of inflation.

My high regard for Ingham’s work meant that these disagreements provoked a response in the form of this long review essay – to stimulate debate on the issues he has illuminated so clearly in his study of contemporary capitalism.   …

So while Ingham’s book provides us with an incisive analysis of capitalism and its fundamental ‘hallmark’: the ‘elastic production’ of ever-expanding and inflationary credit money, it suffers by falling back at points on neoliberal analyses and assumptions. Thereby – though this is certainly not his intent – he reinforces some of the flawed thinking that lets the finance sector off the hook, and allows financiers to continue escaping both scrutiny and regulation while they flagrantly confiscate public assets.
But Ingham raises important issues: with a deeper understanding of capitalism’s ability to create ever expanding amounts of credit-money, how does a democratic society once again rein in, regulate and subordinate the private finance sector to the wider public interest? How does society regain control over the public good that is credit and a sound banking system, and use both for financing society’s most important needs – including the need to tackle the threat of climate change?

Second, as Professor Vogl asks: “how can public goods (including liquidity) avoid being confiscated by the finance economy?” And how can they be restored to public accountability?  If we can move on from Adam Smith’s 300 year-old flawed analytical system to a proper understanding of the powers and public goods we have, due to ignorance, outsourced to the private banking sector – then perhaps as both economists and citizens we might finally be able to understand the creation of money – by both central and private banks – ‘out of thin air’. Only with this understanding will it be possible to devise policies, regulation and strategies to tackle and once again subordinate global finance to the interests of society and the ecosystem. That is why Ingham’s work is so important: it helps us move on beyond Adam Smith towards a fuller understanding of the public good that is credit.”

The above is the introduction and conclusion of Ann Pettifor’s review article

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