Episode #63 Breaking the Austerity Myth: The system is broken – but we can mend it
Imagine a world where we didn’t always feel as if money was tight. Imagine an economy that works for the health and welfare of people and planet rather than all of us working for the health of the economy. Richard Murphy describes where money comes from and how we could use it differently.
We all know the economy is broken – that the experiment of free market capitalism has driven us to the edge of extinction. The problem is working out what to replace it with that will help us to find new ways of being without creating such havoc that lives are destroyed in the process.
In this first of a two-part series, Richard Murphy explores ways we can change the current system to create a different world.
Richard Murphy is a political economist, author of the book The Joy of Tax, and is a visiting professor at Sheffield, Anglia Ruskin and City universities. He’s an adviser at the Fair Tax Mark and was deeply involved in creating the first iteration of the Green New Deal in the UK. He writes the Tax Research Blog, which shines bright lights on the economic illiteracy of free-market governments.
In our conversation, we explore how money is made in the current system, the mythology of austerity and how the world could be if we all understood the nature of the lies. When we all see the Emperor has no clothes, we can re-create a new way of doing and being.
Manda: My guest this week is one of our foremost political economists. Richard Murphy is one of the progenitors of the Green New Deal long before Alexandria Ocasio Cortez put it front and centre of American domestic policy. He’s a co-founder of the Tax Justice Network and a visiting professor at two separate universities. He’s the author of several books, including The Joy of Tax, which I heartily recommend you read. And he’s the host and author of the tax research blog from whose pages he frequently endeavours to teach the politicians and the political chattering classes of the UK and the world about the nature of the economy, and why and how the entire narrative of public debt is wrong, and how it could be put right to create a sustainable regenerative economy. So, of course, we had to invite him on to talk about exactly these things. So people of the podcast, please welcome Richard Murphy.
Manda: So Richard Murphy, multi-talented individual, welcome to the Accidental Gods podcast and thank you for turning out on this rainy, for us, Monday morning. How is lockdown with you?
Richard: Lockdown’s interesting for me. I’m, although most people don’t appreciate it, an introvert. So I’m quite used to working on my own and enjoy working on my own. However, I am getting frustrated by it. The good news is I have discovered more local rivers on my walk than I ever knew existed. So one has to turn everything into an opportunity and that’s been my gain from lockdown.
Manda: Whereabouts in the world do you live?
Richard: I live in Ely in Cambridgeshire, which is a beautiful little city with an enormous cathedral which dominates the whole town and is surrounded by the fens, which is why there are so many rivers and wonderful wildlife. And yes, I am the owner of a pair of binoculars.
Manda: Yes. Good man. My my wonderful friend Andrew Taylor writes amazingly beautiful crime novels, quite a lot of which is set in Ely, because that’s where he went to school and grew up, it’s it’s glorious. So you are one of the founders, progenitors of the Green New Deal, one of the founders of the Tax Justice Network, professor at a number of universities, that varies. And underneath it all, a political economist. Give us a very, very brief look at how Richard Murphy came to have such a broad spectrum of interests and speciality.
Richard: Oh, that’s a very hard question to answer. Briefly, start at the very beginning. I’m a twin, and that’s very important to my identity as a twin. I discovered inequality at the age of 11. It erupted into my life when I passed the 11 plus to go to a grammar school and my twin brother didn’t. And the possibility that there could be imposed inequality in treatment became very rawly aware to me. And from then on, I realised that my defining concern was about inequality, how people are treated unjustly, and how we can create a fairer world at very much the same time. And very bizarrely, I was earning some pocket money delivering parish magazines for the local church and the local vicar, a man who I didn’t like very much, if truth be told. I wrote an article about the fact that one day the world’s resources would run out, and there would be no more coal and there would be no more things, and they would be depleted. And that, again, was a very early influence upon my thinking. Here was this idea put in front of me and I began to read about it as a teenager. The third influence is a wonderful man called Jack Ray, who I would call my mentor when I was a teenager. I won’t go into the reasons why, but he was fantastic and he told me the world has changed by poets, not politicians. And if you can’t be a poet, at the very least, be a writer, because that is the way in which you change the world. And if I was concerned about climate and if I was concerned about inequality, then it followed on that I had to be a writer.
Manda: And at what point did the writing become political economic writing?
Richard: I also became incredibly interested in social history as seen through the lens of railways. And that’s why I decided to study economics and then become an accountant, because I saw accountancy as a mechanism through which these amazing methods of communication, the railways have been built without accounting, without the capital that that facilitates that, there would not have been the railway and the change in society that it created. So I was fascinated by that. But the time came when I was slightly bored by accountancy. If I’m honest, accountancy is an extremely interesting subject, which I much love still. If you cut me open and looked at the words printed inside me as if I was a stick of rock, I’m afraid you’ll probably find the words chartered accountant, because that has underpinned a lot of my thinking about the fact that there is a necessary balance in everything that we do in society. But actually working as an accountant became boring. And when I became around 40, I realised I wanted to do something else. I wanted to actually develop these ideas. I took the risk. I had a brand new young son and thankfully an understanding wife. So with all the responsibilities of fatherhood new upon me, I gave up a regular good income to take the risk of becoming a writer, and I’ve never regretted it. He might have done, but that’s different.
Manda: Do you think anyone in your family regrets that?
Richard: No, to be honest, I have two sons now who are both undergraduates, and I don’t think that they regret the fact that their father is a little awkward on occasions with regard to his thinking.
Manda: Good, you’ve raised good sons. So you are the author of the tax research blog, amongst other things. And the book The Joy of Tax, which is how I found you, which everybody ought to read. And what we want to do today, the purpose of today’s podcast is really, I find now, economics as fascinating as anything else that I’ve studied. And when I was an undergraduate, if you had told me that, I would have laughed like a drain, because I thought economics was a fantasy subject invented by people to keep themselves busy describing stuff that wasn’t real. And what I’ve realised since then is that economics is the underpinning of how our culture works. The way that money flows around is what sustains the way that we behave. And the way that we behave in the words of one of your recent and very wonderful blogs is not sustainable. So you wrote a blog entitled The Ultimate Goal of Government is to deliver freedom from fear. And ours is not doing that. And to be fair, I think possibly with a couple of minor exceptions, maybe Costa Rica, I would struggle to think of another, I don’t think any government in the world is delivering freedom from fear. I think creating fear seems to be the function of the current political class to keep people under control. We can go back to that later. What I would like to establish is, in your view and my view, the current economic system is not sustainable. Can we explain to people in the most basic terms, starting with money, how money is made? And how it functions in the current system, and then we can explain why that isn’t sustainable and how it might be made sustainable.
Richard: Very few people really understand the way in which money is created and it’s obscenely simple, which is one reason why people don’t understand how money is created. People still have this belief that somehow or other, if they put money in the bank, and I have put inverted commas around that, as I’m saying it, then they believe that somehow there’s a pile of something there that represents their money. No, there isn’t, actually. And I get to talk about the modern system of money that which has existed worldwide, in effect since 1971 when the USA came off what was called the gold standard. Since then, all money is just a promise to pay. There is nothing that backs it up. The only thing that proves you have money in the bank is a bank statement with a number printed on it. That number printed on the bank statement is money. Why does it represent money? Because the bank has promised to pay you that amount of money back if you are in credit and if you owe them, you’ve promised to pay them that amount of money back. And that’s all it means. Now, how is that created? Well, let’s presume that you want to borrow some money and all money is debt because it’s a promise to pay. So money is created by debt creation as it now stands. So you go into a bank, let’s presume such thing as a physical bank still exists and you even allowed to go into it, which is a big assumption.
Manda: That might happen one day.
Richard: But you never know. And you go and ask for a loan if let’s say you want 10000 pounds, you want to buy a car, who knows what. And then you ask the bank, can I borrow 10000 pounds? The bank checks you out on credit reference agencies. That’s what they do. And they decide they will give you the money. They will then do two things, which are simply the result of entering figures into a keyboard. They will give you a credit in your current account promising that they will pay whoever you want with that money and they will enter a debit into their loan account. And that represents an asset to them, which is the loan you have promised to repay to them. Those two entries are a plus and a minus in normal language rather than the accounting language. And if you add up 10000 pounds plus and 10000 pounds minus, you come to zero. There is no money before the loan is created. And if you decide at that moment you don’t want the loan, after all, they could reverse the transaction on the keyboard and it’ll be all over and done with and the money would disappear again. And yet it is that simple fact that the bank puts the money into your account and says you can spend it, which creates money. Your promise to pay them and their promise to do what you want with the money they put into your current account are the two promises to create that money and all money is made in that way.
Manda: So effectively, the bank has invented money out of thin air, and then they sell it to us at a profit. Because they don’t just give it to us, they give it to us and they charge us interest. So this is one of the things that really felt like a gold brick wrapped in a slice of lemon. For those of you who have ever read Hitchhiker’s Guide smashing me across the head, when I realised that the banks have the capacity to invent something out of thin air that we want, namely money, and then sell it to us at a profit.
Richard: Yes, you are exactly right.
Manda: And we allow them to do this and nobody complains that this isn’t fair, and they pay themselves astronomical bonuses of the money they’ve created out of nothing, which they then create into something. Can we take it a step back from that? Because not everybody thinks, when I try and explain this to people, they go, but I don’t, you know, I don’t believe in debt. This is my dad, God rest his soul. Never had any debt in his life. He was a professor of engineering at a university. He said, I’ve earned all my money. I have, you know, the university or the government has paid me. And let’s have a look then at where did the government get the money with which to pay my dad, who was never in debt?
Richard: Ok, now this again is something which most people find very hard to understand because, in fact, the government got the money to pay your dad in exactly the same way that I have just explained. A person gets the 10000 pounds to buy a car. The government goes to the Bank of England and says, I want to pay this university so they can pay your dad. And the Bank of England is required by law, the law has existed since 1866, so this is no modern invention, to pay on the instruction of the Treasury, whomsoever the Treasury wants, it cannot say no, which is an extraordinary relationship. But particularly when you consider that until 1946, the Bank of England was a private bank, but it has always acted on the instruction of the government. And that is because of the special relationship which has existed between 1694 and 1946 between the government and a private bank called the Bank of England. And since then, between the government and the state owned Bank of England, the same institution nationalised in 1946, that it will always make a payment that the government asked for. In other words, if the government wants to spend on something, it can, there is no restriction because the Bank of England can always mark up its account with the government by an extra 5000, 10000 or ten million or ten billion, if that’s what the government wants it to do. It is just literally entries in a keyboard. And to make that very clear, Ben Bernanke, when he was the chair of the Fed in the USA in 2008, was challenged: where did the money come from to bail out the banks? It’s taxpayers money. And he said, no, it isn’t. We just made it. We simply put some entries into the computer, and new money existed. And that is how literally the government pays everyone. And the law makes it clear, although this law is little known, but it was last revised in 2000, to indicate how important it is. The 1866 Audit and Exchequer Act says the Bank of England will always pay what the government tells it to pay. So ultimately, your dad was paid because the government passed the budget saying we want to provide education. So when we come right back to it, Parliament decided to approve a budget set by the government, which then authorised the government to tell the Bank of England to pay your dad.
Manda: The Theresa May magic money tree. Why are we so worried about debt?
Richard: We have to understand two things that politicians like Theresa May are obsessed by. One is very straightforwardly that, like most politicians in the Western and developed world, and I use the word developed loosely, are obsessed with neo liberal thinking. Now, let’s not go into the details of neo liberal thinking. What it says is that government is not as efficient as the private sector, and that personal choice is the most important driver of economic behaviour, because we all know perfectly what is best for us, which I have to say as a parent has not always proved to be true in the case of my offspring, and may not even always be true in my own situation. So there is this desire by Theresa May and crew to basically give the idea that there is limited money in the world available to government, so that government cannot do everything that people might wish of it, because it is their argument that space must be left for the private sector to undertake its activities. And they have come up with this phrase called crowding out. And I again put that in inverted commas. And crowding out means that the government is preventing the private sector doing what it would only be able to achieve if the government left it alone to get on with its activities in peace, like polluting the planet or something else of great desire to us all, or producing yet another iPhone of no great extra benefit to humankind as a whole. Now. So that is the reason why she wishes to constrain the role of government and therefore she wishes to pretend that there is a limit on what the government might spend.
There is a second reason why this is important, because there’s inside this logic of government an absolute fear of inflation. And inflation is a destructive force within any economy out of control. It clearly destroys the means of exchange and everybody from top to bottom in society suffers. But what is most important about inflation, as far as parties from the political right are concerned, is that it actually effectively reduces the value of debt that people owe over time. So if I promise to pay you one pound this year and there is 25 percent inflation, in principle, you’re only going to get 75p back. Now, let’s not get too worried about the dynamic mass of this because it becomes exponential and complicated. The point is that significant inflation means that the value of debt is written off. And actually this is intensely beneficial for society. Let me give you a very simple example. My late father is the example I’m going to give. When I was a few months old, my father bought a house in which I was brought up and he paid just under 2000 pounds, which was an extraordinary sum of money for a quite nice house in Suffolk at the time. It was a very comfortable place in which to be brought up, very middle class, very suburban, but now probably worth many hundreds of thousands of pounds when he came to pay off the mortgage 25 years later. And we’re therefore talking in the early 1980s, I understand from him that the total amount outstanding on the mortgage was less than one month of his salary.
Now, he was by then a senior engineer working for the nationalised electricity board. The point is that inflation paid off his debt. His house effectively cost him nothing. But the owner of the debt basically transferred it to him. And so the likes of Theresa May are obsessed about inflation. It is their absolute concern because inflation preserves the value of wealth and keeps everybody who has to borrow. And now that is a very large number of people in society simply to make ends meet and of course, to buy houses if they can’t get access to social housing, which has been deliberately restricted in supply for this purpose, or they can’t get access to education without borrowing, which has been deliberately subject to the creation of debt to control people through the debt mechanism, meaning that they have to therefore work to pay off their debts. All of these mechanisms are there to control society in the interests of an elite to control debt. Overall, if you look at the distribution of wealth in the UK, it is a tiny number who are actually the controllers of debt in the sense that they are in credit all the time in their bank accounts. And it is a large number who are the borrowers within society. They see this as their mechanism for control. They want to control inflation and historically they’ve done that by restricting the amount of the money supply, which has been their theory to achieve this goal.
Now, if I can continue and I’m being told I can, then the point that I’m now going to make is that all these assumptions that have been made by these politicians are wrong. They have assumed that government is constrained when in fact, most of the things that the covid-19 crisis, apart from the climate crisis and everything else that we’re witnessing, has suggested that most of us are actually heavily dependent upon the government. It is absolutely clear that we require better care, better health, better education, better public services, government support for business, because apparently it can’t now function without that government support. In fact, it’s likely that 90 percent of UK business is now dependent upon governments, 90 percent to function. One and a half million companies have now received financial support, and there are, according to tax return data, only about one and a half million functioning companies in the UK. And I add in, some self-employed people have got just to balance the equation a little bit. But we’re talking about the vast majority of UK businesses now receiving state support to continue to function. And so the state and this idea that it must be constrained in its role appears to suddenly be very out of date.
But there’s a second notion that I want to bring in here, and that is the idea that the government has had and Theresa May had, the government must restrict money supply to prevent inflation, is also out of date. And the reason why that’s out of date is twofold. First of all, interest rates, which were the mechanism they used to basically constrain our spending to control inflation, have been stuck at near enough 0% as far as the government has been concerned since 2009 now. And there’s absolutely no one of any credibility anywhere in the world who now thinks they’re going to rise significantly. Two reasons. If they did rise significantly, the whole edifice of debt that now exists around the world would literally totter and collapse. And that’s not the government that we need to worry about because the government can always print more money to pay its debts. I’ve explained how we do that already. The government, which borrows in its own currency, which the UK does, cannot go bust because it can always create another pound to pay. But private individuals can’t. Private individuals would have to pay more interest and they are literally hanging on as it is already, with the debt burden they’ve got. So we can’t increase interest rates for that reason. And secondly, actually, if you look at the historic trend in interest rates and data is available now for around 500 years now, some of the early stuff is a little bit rough and ready, let’s be honest. But if we look at the trend and we, for example, look at the first interest rate charged by the Bank of England, which was eight percent, and we look at what the rate was by 1800, which we know, by the way, from Jane Austen’s novels. If you are an avid reader, you will know that, for example, Mr Darcy had an even Mr Bingley also had all their money invested in the four percent that was government bonds. We know that the trend in government interest rates has long term been downwards and it’s going to stay there. That is actually except for private borrowers, a trend with interest is disappearing. So that mechanism for control is going. The idea that money is in short supply is simply nonsense.
But one final last point on this. These politicians are dedicated to something called the household analogy. Who is the person most responsible for the household analogy? Well, she was a prime minister called Margaret Thatcher. She was, of course, famously brought up by her rather draconian sounding father, who was a small scale shop holder in Grantham in Lincolnshire. And she learnt her economics from whatever her father taught her. And he said, balance your books. Never make sure you borrow, terribly Scrooge-like about the whole idea of this. And the household analogy was what she applied to government, presuming that if money was short in a business, then money must be short in government. Forgetting about the fact that she as prime minister, could always tell the Bank of England, because she had the Exchequer Act of 1866 available to her to use to spend whatever she wanted. So we’re suffering this idea that the government is like a household, which isn’t true. That’s a long answer to your question. But the fact is it’s politically powerful to maintain the representation that money is in short supply when that is simply not true.
Manda: And do you think that current politicians are aware that it’s not true, and that their intent, the whole of the austerity agenda that hit us after 2008 09 when they invented huge billions of pounds and poured them into the banking system and then decided that everybody else had to pay them back, is it the case that the people doing this are aware that this is a fantasy or do they believe their own stories, do you think?
Richard: That’s a very good question, and I wish I knew the answer. I will tell a story which I don’t think it’s inappropriate to now tell. I was once asked by a Labour shadow chancellor to potentially advise them. The shadow chancellor in question was John McDonnell, my hero. And for a few days, I was marked down as being his senior economic adviser. And I went to a meeting chaired by John of a Treasury team that he had assembled. And it was made very clear that whatever I thought and whatever John might think, people on the doorstep thought that the government was in trouble, the government was in trouble because of debt. Debt was going to be passed to future generations. And therefore, Labour had no choice but to play to the narrative that people were telling them, and that it was not the job of Labour to try to rewrite the narrative and explain to people that they were not constrained by debt. And that was what it was going to be. And indeed, that’s what it became. And famously, I did not take the job. And that’s been widely quoted. And John McDonnell said some quite unkind things afterwards about the fact that I might be very good at tax, but not very good at macroeconomics. I have to say, I beg to differ. But what John then did was produce a fiscal rule which said Labour will be obsessed by debt. And because the country had maxed out the credit card, you could not have seen the household analogy more perfectly at work in a party that knew that this was not true, but which believed it had to say to keep people happy. Now, that is really a political failure writ large, in my opinion. That was a failure to do what Corbyn and MacDonnell were elected to achieve, as far as I’m concerned. And that’s why I really didn’t want to play much part in what they were doing, that in fact, I wasn’t a member of the Labour Party, so I’m not a member of any political party. But I was willing to lend my advice if they were interested, only if they were going to talk about economic reality as I saw it.
Manda: Ok, so that’s extremely depressing. OK, let’s take this rabbit hole, because this is useful for where I want to go. There are so many questions, but we would end up with an entire series of podcasts. Let’s assume that at that point, the shadow treasury team in the U.K. understood this, I would say from watching across the pond that Biden’s Treasury team understands what you’re saying, that they are making money out of nothing. The narrative in this country and the States and around the world, as far as I can tell, is maintained not only by a political class, but by a media class. Peston, for instance, is, for those who are not in Britain, used to be an economics journalist and is now a political journalist, because that’s the way you go. He’s pretty much the person, as far as I can tell, who triggered the 2008 banking crash by pointing out that Northern Rock was bust. But let’s not necessarily go there.
Richard: There’s a story to that.
Manda: I can imagine that. We could hear the story. But the political journalist class, do they genuinely believe this household narrative, that there isn’t enough money and that we’ve maxed out the credit card? Or are they maintaining that because it maintains a political structure? I think this is quite important to how we change the narrative. If the journalists at the BBC and Channel Four and CNN and everybody’s main access to information, if everybody were to go, you know what, guys? Quite clearly the magic money tree exists quite clearly. Governments have been making money out of nothing. Don’t worry about the future debt. Is there a narrative structure that would then create inflation?
Richard: Peston doesn’t actually understand economics terribly well. If I just refer to 2008, there were actually two people who got the 2008 story right. One was Peston, with regard to Northern Rock and one was me with regard to Northern Rock. Why did I get it right? I actually pointed out that Northern Rock was failing because it had what was called a shadow bank, which is where the actual failure was. The shadow bank was where it borrowed money in the money markets to fund its unaffordable mortgage offerings, which is what failed. And actually, Peston took a very long time to get his head around that, even though I had explained it to him at length and had put it into the public domain and it was discussed in parliament. So he and I have form on this issue. Does he really understand economics? He should. His father was made a peer, a Lord Peston by Tony Blair because he was a professor of economics at the LSE. Does Peston, the son, understand economics properly? I’m not convinced, but it does perhaps imply why he was so well informed about what was happening in Number 10 Downing Street during the Labour years in particular. Maybe afterwards, too.
I have to say that I think that the media has fuelled the household narrative very strongly because it is a terribly simple line to pursue. It’s very easy to say, well, you can’t borrow money without limit without going bust. So the government can’t borrow money without limit, with going out, going bust, forgetting about the fact that, of course, a household can’t borrow money without limit without going bust because a household can’t create its own money. Just try. You will either find that nobody will accept it, or you will end up in prison if you’ve counterfeited. That created by the government is those are the only two options you’ve got available to you. But the government can create its own money. But it appears to be a universal conceit. And Peston is not alone. Laura Kuenssburg for the BBC is doing much the same. And she and I recently had an exchange when I actually wrote a tweet. She really took objection to when I pointed this out to her. And I know Laura Kuenssburg. I know Robert Peston. And she said that I was unfair to criticise her because this was the prevailing narrative. I said, no, it’s your job to report that this may not be the case, and that there are questions to ask of the narrative. And I am not convinced that we have journalists who are up to that task at present of questioning the prevailing narrative, it’s comfortable not to do so.
Manda: Isn’t that interesting? Because it can’t a bandwidth thing. I’m not the brightest person in the world, but this isn’t hard stuff. I got my head round it. So if they’re not getting their head around it, it’s because they don’t want to.
Richard: Yes, I believe so.
Manda: It’s because, there’s the groupthink says it’s dangerous to step out of the tribe. So annoying.
Richard: Can I just explain why debt is such a good thing for the government, by the way? Because you know, this obsession by debt and the fact that people keep saying, oh, we’re going to pass this debt to our children, well, if only I could. Let’s go back to Jane Austen and the fact that Mr Bingley had 5000 pounds in the four percents, which made him an exceptionally wealthy man in 1810. Private wealth is created by government debt. If the government runs a deficit, there must – and this is where I go back to this fact that I’m a chartered accountant – if there’s a one side of the entry accountancy says there must be another side of the entry. The deficit must be matched by somebody else’s surplus. So when the government runs a debt deficit, somebody’s got a surplus. And the result of the massive deficits we’re creating around the world at present is that there is a vast quantity of money being injected into the world, which is being saved by some people who become incredibly wealthy as a result. And they don’t even want to acknowledge this fact, and the fact that they will be passing on this enormously valuable asset, a guaranteed debt always repayable by the government to their children. But other children will lose out as a consequence of the austerity measures that those same people who will pass the debt on their children are promoting as the way to preserve the value of their debt. So we are fuelling inequality, which again, is this driver of my concerns.
Manda: Right, which brings us very neatly, thank you, well done, to the current system is not sustainable. It’s not sustainable financially, it’s not sustainable socially, and it’s definitely not sustainable from the perspective of the world planetary ecosystems. So I think we’ve looked enough at how it’s not sustainable, although I would quite like to go briefly look at the assumptions that underpin. The system that we have in order that we can create here and now a system that is not just sustainable but was actually regenerative, so that instead of passing unsustainable social, cultural and climate systems to our descendants, we can pass something that’s better than we started with. So you wrote a blog which had a number of the assumptions. I don’t think we can go through them all because it’s quite a big list. Let me just go through a couple of them. So the first one, and the one that that always hits me, the biggest is ‘nature is ours to exploit at will’. I think that’s self-explanatory. We have pretty much for the whole of the last 10000 years of of human evolution, treated the natural world as if it was ours, as if it was infinite, and as if there was no comeback for our using it. Let’s let that one rest, unless you have a comment on that.
Richard: Well, I do have a comment on that, because this is absolutely at the core of how we do have to change our economic thinking. If we don’t understand this issue, frankly, we’re not going anywhere. I first came across this at the age of 17. I read a book by an academic, I mean, which is unusual for a 17 year old, I guess, called The Cost of Economic Growth by a man called E.J. Mission, who was greatly ignored at the time. And it was a Pelican book, which I found in my local bookshop and bought with my probably limited income at the time. But I loved it. It was fantastic. And it helped shape me in the way that my thinking went on to Schumacher, and Small is Beautiful. Everything else that followed on from that. The point about it is that nature is finite. Now, that is the real economic constraint that we face in life. It isn’t money that’s finite, which is what conventional economics, which we’ve all brought up with, has led us to believe, and which politicians suggest. We need to have an economics built upon the fact that nature is finite, and I actually explored this in another book I wrote called Courageous State some years ago, in which I looked at how we could imagine an economic system where we accepted this constraint on our material consumption and how it would change our behaviour. And of course, if we actually literally constrain our material consumption to the point where we pass a planet to our children, which is as secure with regard to the command of resources as the one we inherited from our parents, then we would change the nature of our consumption. We put more effort into our social lives, our emotional lives. We put more effort into our intellectual lives, literally learning in how we understand systems, but also into understanding our purpose, our spiritual wellbeing as well. I’m not advocating a religion here. I’m talking about our understanding of purpose. And that is reflected perhaps in the fact that I’m a Quaker. Now, take those issues and you understand that actually this is the constraint. We are overconsuming our material well-being now.
Richard: Therefore, money is not the issue, and we can create the money we need if we have to use it to live within our means, which requires us to go through a transition, which popularly is called the Green New Deal, which, as you’ve noted earlier, is what Joe Biden is now, we can hope is embracing inside his thinking in the USA with some very powerful members of Congress, Alexandra Ocazio Cortez, AOC, and her crowd around her, pushing this issue over their base very much on the ideas that were created here in the UK by me and the Green New Deal group. So that idea has had some influence, but it also feeds back into this idea of money because what it says is that actually money is a constraint if we get to the limit of what we can reasonably consume. And one of the things we can reasonably consume is nature and the other thing that we can reasonably consume is people. Now, I don’t mean we eat each other. I mean we put each other to work in the way that each of us wants to work to fulfil the needs of others. And those needs, of course, are not just material consumption. As far as I know, there is no limit to the number of songs that we can play to each other. There’s no limit to the number of words we can pass to each other through podcasts and other medium, which are very low carbon consuming and as a lot of human activity actually is when looked at on what is good and what we really enjoy, lots of it is very low carbon consuming. There’s no limit to the number of words we can deliver in terms of education. We can do those things. What we can’t do is over consume, so we can redirect the nature of human labour. But human labour, we should be trying to put to use because not using the resources of somebody who wants to work when that is literally wasted, when they don’t work is one of the biggest crimes that I believes exists in our current economic system. And the system that we have treats people, unemployed people, as the residual they’re willing to tolerate to maintain their inflation. Actually, what modern monetary theory, the magic money tree says, is we can keep spending until we hit a real physical constraint. One of those would be abusing nature, and we have to allow for that in terms of regulation and tax to make sure we don’t. The second one is if we try to employ more people than there are that actually exist, we will get inflation and we must either stop trying to employ more people, or we must use tax to reallocate what those people do. But therefore, this constraint, this fact that nature is our real constraint, has to be built into our monetary thinking as well, because it’s absolutely imperative that we understand this to all our future economics. If we only discuss that one constraint and how we live with it, we’ve still made progress,
Manda: OK. All right, let’s do that, because so two things arise. One of the things that put me on my current track was a conversation with a neighbour in our old house where I was talking about the fact that we had to learn to live sustainably. And she got very triggered and screamed at me that she wasn’t going to end up in a cave living off rotting goats, which was one of those interesting internal visions that has never left me. Why goats, and why are they rotting? But, and this is I find when we’re trying to recreate a new narrative, then the prevailing narrative amongst the kinds of people I met on the doorstep at the last general election in that horrendous December when we all trudged through the West Midlands, getting cold and wet and miserable, was leaving aside that Brexit was their only interest. If we managed to get them to talk about anything else, the view was, I have a right to consume. I want to be able to consume. Unconstrained consumption is everything. And if you try to change this in a way that is sustainable, I will end up in a cave, living off rotting goats or whatever is their metaphor for that. And so what I would like to do, is for you and I to create a way of being and an economic system that enhances people’s lives, that flourishes, that enables them to feel that their lives are flourishing. Without leaving us with societal, cultural, political, economic or climactic and ecosystem crisis. Can we do that in the remaining however many minutes, do you think?
Manda: My main aim for this was, you have tweeted and blogged a lot about a future independent Scotland. So I’m thinking there’s a nation of five million people that could well be about to get a fresh start. If you were asked by whoever is the first minister at that point, Richard, come and sort our economics for us. Let’s create an economic system for Scotland that could then be a beacon for the whole of the rest of the world.
Richard: Well, look, there are people who I know in Scotland who are working on this. I’m quite actively involved in Scottish independence politics and unashamedly so. For a guy who’s got a British and Irish passport and not as far as I can work out a streak of Scottish in me, I’m incredibly interested in Scottish politics, partly because I’ve got an Irish passport and therefore I have sympathy with another nation who wants to be independent, but also because I see an opportunity there. It worries me. I mean that people keep on thinking Scotland hasn’t got opportunity. The first thing we can say about Scotland, which is freakish, is that it is actually the country with the largest natural resources for energy production in Europe. This is the Saudi Arabia of the future. No wonder England doesn’t want to let Scotland go because it has massive tidal power. It’s got massive ability for wind power. It isn’t actually bad on solar power. And so energy is absolutely available in even greater abundance than the oil years in Scotland. So Scotland is slightly fortunate in that sense. But can it be done? Look, yes, first of all, remember, it would be zero carbon, which we have to be if we are to have a future for our children. If we’re going to be zero carbon, we have to actually control two fundamental motors that most of us are in control of. If we did control those two motors, we would be a long way to achieving that zero carbon. One of those motors is actually called a motor car, and we can’t afford to continue to burn oil in our cars in the way we did, because that is clearly, and with all the ancillary motors as well in delivery and so on. But they are clearly burning the planet. So we have to transform transport. We don’t have to eliminate transport. We have to transform transport. And that is going to make us think more local. I don’t have any doubt about that. It is also going to make us long term once we’re over Covid, to think more about public transport and how we can revive that in different ways again.
But we are going to have transport. There’s no doubt we’ll move. But actually what we’ve also learnt during Covid, and there are lots of learning experiences which we’ve yet to really embrace, is that local matters, and local people matter, and local relationships matter. I know my immediate neighbours, the six or so households around mine, vastly better now than I did a year ago. And there are friendships which are better now than they have ever been. And I really like that fact. And we’ve understood these friendships and all sorts of friendships really matter to us, but transport is still going to be there. The other one, of course, is I’ve talked about the household, and the other big motor that we all burn is the gas boiler or whatever it might be that provides the heating in our households. And we cannot continue to burn oil and gas in the way that we have for that purpose. We have to use what is going to be very clearly renewable electricity from other sources. And it is entirely possible for that to happen. The Climate Change Committee showed that this is possible and that they show for an investment of around six billion pounds a year over the next decade or so. That’s a lot of money, but it can all be created. Remember, we can actually retrofit houses so that they are insulated. We can fit solar panels, we can fit heat pumps, we can improve those places that can’t have heat pumps, the sources and efficiency of whatever remaining gas we have to use. So that we can radically change the way in which we burn energy to keep ourselves warm. Once we’ve done that and we have required that businesses do the same thing and rethink their processes so that we have to reduce plastic, reduce packaging, reduced burning of literally carbon to get products to us, by shortening supply chains so that we are slightly more seasonal, perhaps with regard to our food production. But even then, actually, there are methods of producing food which are very low carbon intensive, lot of them based around hydrocarbons or various forms that can actually produce food in the way that we haven’t to date. We can end up with food that is sustainable. We can end up with a lot of consumption goods, which is produced in different ways but may not have quite as much plastic around, which I have to say as a parent would please me greatly, because all the plastic which was consumed during my boys’ childhood was really quite offensive in many ways because it’s just all plastic that’s aimed at them. And yet. It was the cardboard box that was more interesting, which was entirely recyclable in this case. If we just rethink how we do these things, we can end up with a totally rewarding, totally nourishing, totally warm, totally meeting people, society.
Where is one constraint that we might have to live with? Air travel is a problem. I have no doubt at all that we have to rethink air travel, and I am standing before you, sitting in front of a microphone, before you, if I should perhaps be saying, as a hypocrite, because I have travelled an awful lot by air in the last decade, I’ve only done… I’ve done no holiday by air since 2009, as a matter of principle, I have not flown for my own choice. But being an academic has meant I’ve travelled a great deal over the last few years because there has been this obsession with international conferences. And so I have a high carbon footprint. I’m delighted in the last year I have not stepped on a plane. If I never do so again, I’ll be delighted. But a lot of people want to and we do have to rethink how we at least ration air travel, because I think rationing is incredibly important. In the first instance, most air travel is consumed by very few people, those who travel excessively for work. But even a much more important, those who travel excessively for leisure, those who have second homes in France and those who have second homes in Spain, and wherever else are the big consumers of air travel, they consume up to 80 percent of all flights, bizarrely. It’s business only consumes 10 percent of them, and most of the rest of us only consume 10 percent. And of course, 50 percent of people never get in the plane. We have to understand all of that and rethink how consumption of air travel is involved. That area, I do think there’s a big education process, but for the rest, yep, we can still have cars that they will look different from the ones we have now, the status symbol element within them, the giant juggernaut car may well have to be relearned. The petrol heads are going to have to get their kicks somewhere else. But we can have a different society, and it is one we are going to enjoy. We are not going to be living off rotten goat soup. Thank God, I hate the smell of goats. There are few things I don’t like: goats, everything to do with goats, is one of them.
Manda: So it sounds to me as if this is broadly speaking, an economic system very similar to the one we have now. It’s just aiming at a zero carbon economy, using regulation and tax, possibly in the Christian Felber’s way of making sure that you’re taxing businesses that are being regenerative or sustainable higher than the ones that are, I guess? And we’re probably looking at Kate Raworth’s doughnut model and making sure that everything remains within the doughnut. We have talked about that before in the podcast. Are we changing the ways that people behave, because if all we do is change tax and regulation, human behaviour will presumably stay the same.
Richard: Let’s just come back to what tax is for. Yes, I have already explained very much earlier in this conversation that government can spend without ever having to look at whether there’s money in the bank. You can simply tell the Bank of England to create it. It does tax for a number of reasons. One of those reasons is to prevent inflation, because if you just kept on spending without actually reclaiming the money it created, we would have inflation. We don’t want inflation. So it taxes to stop inflation, not to pay for what was spent, but it also taxes for very strong social purposes. One is to redistribute income and wealth because as I’ve explained our existing systems tend to actually exacerbate inequality. And that’s bad news for societies of all levels. The wealthier suffer from inequality, by the way, as do the poorer suffer from inequality. We all do. So we want to tackle that. We want to change behaviour. And we can use the tax system to change behaviour by, well, pretty bluntly nudging on occasions people by increasing taxes on bads, and reducing taxes on goods, goods being good things, not just material consumption.
So we can use tax to achieve that goals. And we can also give tax incentives to business to change their behaviour. And if that fails, we can regulate. You may not use plastic for packaging any more, will change behaviour. Simple, straightforward fact, but we get there in stages. People have to be encouraged to change their behaviour rather than bluntly told. You can’t do, people don’t like being told you can’t do. They don’t mind learning. My experience with young people, and one of the good fortunes I’ve had over the last few years, teaching quite a lot of young people, as well as engaging with them through my son’s friends and others, has been to realise that they have a very different attitude to the world from that which my generation had. They, first of all, actually don’t need to be told a lot of them that racism is bad news and gender identification and prejudice is bad news. They simply get it. For them, yeah, identity politics is living. And for them as well, they realise that if we don’t tackle the climate crisis, well, they’re in a bad way.
Now, this may be a selected sample because all this lot have gone to university, etc. and I might just have been fortunate about the classes I’ve taught and they might have been pandering to my whims. Who knows, they might have wanted a higher grade by saying, I’m such a clever guy. I hope not, but you never know. I’ll allow for a little bit of cynicism. I, however, genuinely believe that as a sample I can see that there is a change of behaviour happening amongst younger people, young people who just get it. I had to be taught very forcibly by my first girlfriend just what feminism was, because when I was 18, I had been told that there would always be a woman to look after me in life, by my parents and my school. A boys’ school had reinforced that image. I had to learn things, though. Quite simply, young people now don’t have to learn. And it took time to learn that the same as many of us had to learn just what racism was and how we had to learn how to be an anti-racist, not just to be not racist, but anti-racist. And again, young people have learnt stuff that we have had to learn. They’ve learnt it already. So I do believe there’s a process of change going on and it will get easier and easier to achieve this result as a consequence. But I’m not saying that we are not going to have to change some people’s behaviour. We will, and there will be some people who won’t like it. Yes, but we have mechanisms to sell to them. And it’s my method is always to say, you don’t care about the future. And some people who are old say, no, I don’t. And then you remind them that there are people they know who do care about the future. By and large, they can be persuaded. But I think there’s a massive amount of education to go into that. And the media has a big role to play there.
Manda: Yeah, and as a friend of mine says, when we get to the point where it’s as hard to be unsustainable in society as it is currently hard to try and live sustainably, then we’ll know we’re on the right track. Final question, because we are running out of time, but in our imaginary Scotland, which is coming with independence, what is Scotland doing for currency? Is it going to be block chain based? Is it going to be a Scottish pound that actually is is physical? I’m kind of interested in the block chain. Not that we can have a block chain podcast just yet because that’s a whole other podcast, but because up until now, governments have been in charge of the production of money and the block chain up to a point has shifted that a little bit. But what kind of currency is Scotland going to have?
Richard: It’s going to have a currency which will look exactly like the pound, except it won’t be the pound. It will be called something else. I’d love it to be called the kilt, but that’s me being silly.
Manda: Will it be exchangeable with the, what will then be the English pound?
Richard: Yes, of course it will, just as I can buy Danish kroner with the English pound and vice versa. I mean, part of my income is paid in Danish kroner at present because I receive income from a grant in Denmark.
Manda: But you can’t use Danish kroner to pay your tax.
Richard: No, this is the key point. And let’s come back to why tax is so important and absolutely the flipside of money and why Block Chain has no part in this. The government has to create money, and the government gives money its value because it demands that tax be paid using its currency and nothing else. Now, there’s two consequences of that. One is that if you are actually going to pay a significant part of your income in tax, and we all do, and that will be true in a new Scotland as well, it will be at least a third of people’s income will in various ways go in tax, maybe more, because that’s the current state of play in the U.K. So I suspect Scotland won’t be that different. Then basically, you’ve got to use the government created currency because you can’t afford the exchange rate risk of dealing with in all your currency transactions in pounds and then having to buy Scottish currency, whatever it might be called, to pay your taxes. In other words, simply demanding that VAT be paid in the Scottish currency and VAT is charged on everything you buy in the shop requires that that whatever you buy in the shop will be priced for in Scottish currency. So it will overnight become the Scottish currency. Just as – and I’m old enough to remember this, in February 1971 we decimalised the UK and everybody said it’ll take forever for this to take place and people will still use the old currency. You know what? By the evening of the 14th of February, 1971, nobody was using pounds, shillings and pence anymore. It was already new pence as everybody called them then. And we’d forgotten what the old one was. It just went so fast. It was unbelievable. So Scotland will have its own currency. It will be created by the Scottish government. It will be managed by Scottish banks. There might be branches of British banks working in Scotland, but they will have to be registered in Scotland to manage Scottish currency. And this currency will, like any other international currency, be exchangeable with that of another jurisdiction, including the UK. In fact, of course, on Independence Day or whenever the currency is introduced, lots of people in Scotland will, as a matter of fact, decide to transfer all their sterling balances into Scottish balances. And they’ll also be able to decide, because this is what international law decrees, that they can actually move their mortgages into Scottish currency if they so wish, because that is what happens when new countries are created and there is legal precedent and it’s allowed. So there will be people buying Scottish currency with English pounds, and that will give Scotland the foreign exchange reserves it needs as well. So there will be a currency. Scotland will not inherit much English debt because the English national debt is not nearly as big as people claim, nor will it have to repay it because actually nobody repays the national debt.
Manda: Why don’t they repay the national debt? Because people want to own it, just like Mr Bingley did. I’m going back to Jane Austen again, but people even want to pass it to their children. Again, I’m going back to that narrative because this is private wealth. So you don’t have to force people to give up their private wealth to end the national debt. So Scotland will create a system in this sense, which looks much like the UK. But if Scotland is wise, it will recognise that some magic money tree, and there are lots of Scottish politicians who seem to understand this better than do English politicians. The SNP Policy Committee right now has several modern monetary theorists on it who are, including the chair, who are very clear that this is the direction they want Scotland to go in. And I know all these people, I admit, and this is what we’re talking about, and Scotland could use this to create a totally different economic economic model driven at full employment driven by sustainability and underpinned by that value that is created by the Scottish government by demanding tax, but also underpinned by something else, its ability to create sustainable energy for which it will have a very near neighbour who is in very short supply of sustainable energy, who will want to buy everything that Scotland can produce, which will then be shipped over the border, which is a bit north of Hadrian’s Wall.
For those who don’t know where the border is, it’s not Hadrian’s Wall. It’s somewhat further north, Northumberland in between. But Scotland will be selling power to England, who will be wanting to buy it because England will not be wanting to produce unsustainable energy in the future. So the point is, Scotland can do all of this with its own currency. Why not block chain? Because A, block chain is not accountable. B, it’s produced privately. C, it’s subject to massive variations in value. Inflation and deflation are built in almost overnight, so it has varied in value in the last year or so by thousands of dollars per block chain unit and D, you’re talking Bitcoin there, but block chain is also untraceable in most systems. The definition of block chain is this open, but nonetheless secret ledger, which makes it untraceable. I do not believe Block Chain provides any useful answer which cannot be provided with good old fashioned double entry bookkeeping in a conventional ledger.
Manda: Ok, is there any last thing that you would say that people could do now to begin to usher the whole world, not just Scotland, towards a much more sustainable economy, the people listening? Is there an action or a group of actions that people could take today?
Richard: First of all, understand what the Green New Deal is saying. It’s not offering us hair shirt. Nothing wrong with the hair shirt if you want one, but you know, it is offering us a new view of how we can live well. It is not offering us something ghastly. And secondly, actually, I’ve got a book I would recommend and I didn’t write it. It’s a book which is coming out in paperback very soon. It’s in hardback now and it is Stephanie Kelman’s The Deficit Myth, and she has written the best book, which explains this view of money that is currently available. I do it in The Joy of Tax, but not as well as she does it in her book, The Deficit Myth. It is US orientated and I admit that. So some people say it’s a weakness of the book, but it’s generally applicable. Worth looking at, because if you understand that there is a Green New Deal and that money can be provided to create it, you’re halfway to believing that we can be sustainable and therefore your actions in doing all that recycling and everything else, which sometimes feels a little bit futile in the peripheral and around the edges, suddenly becomes more meaningful. So I think worth understanding, and that’s critical to this progress that we need to make.
And then you can write, everybody listening: you can write letters to your local paper, you can write to your MP, you can write to anyone who has the power to make things change and explain to them that the deficit myth is a myth, that austerity was an ideological choice, that the way our current politicians behave is not sustainable and is not necessary, unless their purpose is to keep an overclass very rich and the great mass of the underclass very poor. And very few of them would admit that that is their actual purpose. I think having conversations with people and one by one overturning the idea that people on the doorstep believe, that there is a debt to be paid, would be a huge step. If you can hold that conversation with three other people so that they understand it and they can hold it with three other people, then we have another number of three. And as we all know, that’s an exponential growth and it spreads virally.
Manda: Richard Murphy, thank you so much. This has been so entertaining and so informative and so useful. Thank you for coming on to Accidental Gods.
Richard: Thank you very much for asking me.
Manda: So that’s it for another week, huge thanks to Richard, for taking the highly complex concepts of economics and money and debt and taxation and shaping them in ways that all of us can understand and begin to work in our lives. And with Jane Austen as our key example, what more could we ask for? I really do recommend that you follow Richard’s blog. I will put a link in the show notes, because economics is the sea in which we swim. And until we are able to hold the conversations with our peers to help them understand why and how we are being lied to, we will not be able to change this. While the political narrative is that people think that we have to pay down this debt, that austerity is necessary, that the credit card is maxed out, that it’s possible to put a note in a desk saying, I’m sorry, there’s no more money and for that to be true, we will not be able to change things. Really, I hope what you take from today’s conversation is that we are being lied to, that that is not true, that not only is there a magic money tree, it’s just a keyboard. The government can make as much money as it wants. When I was at college, I found the analogy of the economy as quite a complex machine. Just imagine a machine in front of you and the money is the oil that allows it to keep moving. The government pours in the oil at one end and it siphons it off out at places around the system in order to stop it flooding. And some people steal the oil and put it away and little private casks in places like the Cayman Islands, but if they didn’t, if there was no leaky bucket letting the oil out, the government pours it in, the government siphons it out and the system keeps moving.
And if the government stops pouring it in, then individual people have to create oil by taking out debt, the needs to be oil in the system or the system falls over. And what the years of austerity did was made everybody have to borrow oil, as in borrow money to keep the system moving. If the government stops pouring oil and the government doesn’t create money and call it debt, then individual people have to go into debt. That’s how the system works. So we can get our heads around this. If the concept of the economy can stop being something big and frightening or just terribly tedious that people ignore, if we can get our head around the fact that the government can make as much money as it needs, it can do with it what it chooses and that things like the NHS are not a waste of money. The government pours the money in and then people spend it and the government takes it back as tax. It isn’t vanishing. It doesn’t get burned in piles of tenners out the back of a hospital.
That’s not how money works. So government spending is not a waste of money. It’s the oil that lubricates the system. And of all of the things that we need to change of agriculture, business, travel, education, our spirituality, all of these, the way that we handle money underpins this. And this is where the levers of powerlessness, separation and scarcity of our culture begin. The sense that there isn’t enough. This is what we need to change first. When we rebuild money to make it the key, that brings us together. That gives us back a sense of control in our lives. What Richard was talking about, of having the work to do that is our calling. That isn’t just a way of dragging in money to pay off our own debt when the things that we do allow us to build communities of place and of purpose that fulfil and enrich our lives, then we will be on the way to healing ourselves and the planet. So this really matters, and I know it’s my thing and I know I go on about it, but it does still really matter. So go and have a look at Richard’s blog, or do whatever it takes to get your head around this and go and hold those conversations, hold them in the queue in the supermarket, hold them with your strange relatives who have different political views.
Everybody cares about having a future that works. And if we can make those conversations happen, if we can help people to understand that we have been lied to for so long, then we can facilitate change.
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