Time for the Magic Money Tree

One of the great things my children tought me was that, when you are playing a game with defined rules, if the rules are not working well you change them. The meta-game of manipulating the rules is itself of value, and extends the life of the game. This has application in real life!

It seems not long since UK politicians were proclaiming that the magic money tree does not exist, and there was no alternative to austerity. Yet it turns out that it does indeed exist, and is being deployed by central banks to help governments to handle the financial crisis erupting in the wake of covid-19. Money is created, by the central bank, at the stroke of a key on a keyboard, is used to solve the problem, and may get paid back eventually. There is now no alternative to the magic money tree.

How so? Money was originally created under the control of kings and emperors, both to enable trade and as a means of control. Later, institutions that became known as banks, became powerful by being given the right to create money as debt. This became the main source of new money. Banks became almost as powerful as the governments that superseded those kings and emperors.

The debt system worked well in many ways, but as most money is debt, ever increasing debt becomes a problem. Bubbles happen, inequality increases, and eventually system failure occurs, as in 2008. Solutions were cobbled together and the system and most banks carried on with business as usual. Inequality continued to increase.

The trouble with increasing inequality is that it eventually becomes unsustainable. People revolt. The French Revolution, the Russian Revolution…

Now there is a terrible shock to the system – covid-19. With the world in lockdown, already there are calls to revert to the status quo, business as usual – yet it is quite clear that if this happens inequality is likely to reach levels not seen for centuries, with many people unable to pay for the necessities of life.

There clearly is an alternative. Consider, for example, a world where some proportion of money is created, from the magic money tree (‘sovereign money’), as a basic income for all citizens of a country – enough to sustain them, but not enough to discourage them from taking a part in ‘the economy’. Of course this will in some degree dilute the currency and reduce inequality. Depending on degree, there may be slight inflation.

Would confidence in the currency be lost, such as in post WW1 Germany, leading to ridiculous and rampant inflation? No, because this would be quite predictable, and could be introduced across a range of world currencies at the same time.

I’m sure there are other solutions, but this thought experiment suggests that ‘business as usual’, as well as being undesirable, is not the necessary resolution of current circumstances.

Oh, and maybe we could aim to address climate breakdown at the same time, before it’s too late?

See also earlier posts from 2017 Magic Money Trees and So there is a Magic Money Tree.

Featured image from Positive Money blog.

2 thoughts on “Time for the Magic Money Tree

  1. Thanks Barry and certainly since I have been reading about a national basic income I ahve become a fan. Apparently it has been tried in several areas, one or two here in Canada, and it has worked but for the powers that be it seems to be a scary thing!

    Liked by 1 person

  2. Thanks for commenting, Wayne. Yes I think there are a few instances around the world, not necessarily coupled to money creation. It’s certainly not an outlandish suggestion.


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