Books in brief: The Production of Money by Ann Pettifor

People serve the financial system—it should be the other way round
March 14, 2017
The Production of Money: How to Break the Power of the Banks, by Ann Pettifor (Verso, £12.99)

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Ann Pettifor’s new book is an excellent contribution to the growing body of thought exposing mainstream neoclassical economics’ poor understanding of money, banking and finance. Furthermore, she elucidates how its thinking has led to a financial system that we serve, instead of one that serves us. Drawing extensively on Keynes, she proposes: that bank lending should be regulated so that credit is guided into productive lending not speculative activity; that regulators should set different interest rates across a spectrum of lending; controls on international capital flows; and the adoption of a new Bretton-Woods system of managed exchange rates.

Why aren’t these important ideas taken seriously? Disappointingly, Pettifor takes the easy option of blaming vested interests, rather than getting into the detail of how interest rates and capital flows are misunderstood. Furthermore, her solutions don’t solve key problems, including ending “too big to fail,” removing implicit bank subsidies, and protecting the payments system. For these to happen, banks should be stripped of their power to create money, which is what my organisation, Positive Money, proposes. But while Pettifor takes a whole chapter to criticise such ideas, she simply does not engage with their potential benefits. Her writing contains many misrepresentations and misunderstandings.

This confusion is probably as much our fault as Pettifor’s, but it does highlight the point that if progressive critics of our current money and banking system are going to make any practical progress, we first need to learn to better understand each other.