Ann Pettifor

The power to create money ‘out of thin air’

Welcome to my latest PRIME publication, The power to create money out of thin air.  At first sight, this is a long-delayed review of Geoffrey Ingham’s book, Capitalism (Polity Press, first published 2008).  However like all the best reviews, it has become a hook on which to hang discussion of the author’s contemporary pet themes. Here, these include primarily, capitalism’s ‘elastic production of money’. However, I also take the opportunity of explaining why misunderstanding about the creation of money out of thin air is so widespread, and why orthodox economists are mainly responsible for the confusion.

Out of this discussion arises a further one about ‘fractional reserve banking’ – currently at the heart of debate surrounding an IMF Working Paper by Kumhof and Benes. Then I take a pop at the theory and policy frameworks that prevent (or claim to prevent) co-ordination between monetary and fiscal authorities.

The review challenges, too, the widespread assumption (long promulgated by the enemies of labour, but also held by others) that wage claims by trade unionists caused, or led to, the inflation of the 1970s.

But Ingham’s book raises important issues which are and will be at the heart of politics and economics in 2013: 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?

And finally, how can public goods (including liquidity) avoid being confiscated by the finance economy? And how can they be restored to public accountability?

All of this should of course have been drafted as a series of short, readable blogs. Instead I offer only a long ‘review essay’ – for which I beg forbearance, but welcome readers’ own comments and ideas on the issues raised.

To download the pdf, click on:



4 thoughts on “The power to create money ‘out of thin air’”

  1. Thankyou for allowing me access to read this paper, it has been insightful and thoughtfully written , i hope you dont mindif i use some of it and popularize it?

    yours gratefully,


  2. This is a valuable and clearly laid out contribution to making sense of the continuing financial crisis, its causes and cures. There are a tiny number of analysts and commentators who are an essential antidote to the obfuscations of the mainstream media and economics and Ann Pettifor (at least since the Real World Economic Outlook of 2003) is one of them.

  3. The Need for Radical Monetary Reform
    The way money is created is at the root of the environmental and economic crises. Most people do not know how our money is created. This includes the Treasury, David Cameron, George Osborne, our political and business leaders, so-called, EU Leaders and most economists. In particular the UK Coalition and EU leaders do not understand how this system needs to be reformed or how to resolve the current and inevitable future financial crises. Meanwhile millions of people suffer unemployment and needless austerity. These are the consequences of Neo- liberal austerity policies. The media give us a torrent of mostly depressing news stories but are silent on the need for monetary reform.
    Do you know that 97% of our money is created by commercial banks “out of thin air” through debt, not the Bank of England or the Mint? This means that the commercial banks, not our government, control our economy. David Cameron and George Osborne, ignorant about the money system and terrified of vested interests that fund their campaigns, are powerless.
    The debt money system making vast profits for the banks, increases the cost of everything, fuels the nation’s escalating debt. It also drives growing inequality, systematically transferring wealth from those who create it to a tiny super-rich minority. Making money out of debt increases the prices of homes, making them unaffordable for many hard working people and the young, whilst a rich minority benefit. The need to pay interest and repay loans drives unsustainable growth. Reckless speculation by banks contributes to boom and bust in financial markets that leads to regular financial crises. Our economy has become unbalanced, talented people being diverted from making things into the financial sector. The huge short term profits and excessively high salaries result in a brain drain into banking and financial services.
    Under proposed reforms, commercial banks would be prohibited from creating money, that role becoming the sole responsibility of an independent commission acting in the nation’s interests as decided by a democratically elected government. Until that is done recurrent crises and mounting debt will continue. Of course there are vested interests who will do all they can resist reform.
    Ordinary people, so-called, know that they are being ripped off by huge scam is going on; it’s up to us to explain how it works and encourage a mass popular demand for radical reform. Otherwise government will not implement radical system change and will continue to toy with fixes that will not work.

    The new book, Modernising Money sets it all out. Buy it! And join the campaign. Support the Positive Money campaign and

    There is more about Monetary Reform in my book A Better World is possible. Do look at my book and new radical articles at and

  4. Wonderful, wonderful. Such clarity, even a berk like myself can understand it. The only question now is how to spread the knowledge that you have so carefully distilled. I wonder if this could be turned into a pull out section in The Guardian, or some other web presence with worldwide reach.

    I sometimes worried that a touch of conspiracy theory was creeping in about your & Steve Keen’s complaints about being deliberately excluded from the academic economic discussion, but it is perfectly clear that it is happening because it’s just so damned embarrassing to realise that you have missed literally the first principles upon which any study of your subject must be based.

    These guys are just temple priests. It’s really interesting that economics students – the ones that are interested in the subject, not just in getting a path throught to a career in banking – are now actually disrupting their professors’ lectures. Best of luck to you all!

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