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Explaining money creation by commercial banks: five analogies for public education

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avis › Tidsskriftartikel › Forskning › peer review

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Educators and economists concerned with monetary reform face the extraordinary challenge of explaining to the public and its elected representatives not only what a reformed system would look like, but also how the current system works. Centrally, the point that in a modern economy money is largely created by commercial banks, as explained by the Bank of England recently (McLeay, Radia & Thomas, 2014b), is often met with incredulity: “What do you mean, created?” This paper introduces five easy-to-grasp analogies that educators and reformers may use to convey key money-creation concepts to a lay audience. The analogies offered include (1) money as patches in an expandable patchwork quilt that covers a nation’s real assets, (2) the money supply as water in a bathtub with a faucet and a drain, (3) money understood as debt in a model economy run by schoolchildren, (4) the misleading concept of a bank “loan” explained by reference to gold that a London goldsmith could have lent, and (5) the money-creating capacity of bankers’ clearing systems illustrated by the example of neighbors working for each other without money.
OriginalsprogEngelsk
TidsskriftReal-World Economics Review
Nummer71
Sider (fra-til)92-111
Antal sider20
ISSN1755-9472
StatusUdgivet - 12 jun. 2015

    Forskningsområder

  • Money, Money creation, Banks, Analogies, Heterodox economics, Monetary reform, Monetary policy, Finance, Money supply, Bank lending

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