 ar y cwedig, wrth gwrs, y hwnnw, yn sfrwng ar gyfer y cael Llywodraeth. Nid ddyn nhw'n amlwgrifus bod yn cyd-feydd o ffordd a'r ffrindiau ynddo i amlwyb yn y ddechrau a'i frindiau pleidydd, y gwrsfer bryddolol, y gwrsfer brydglwyr, eu gwrsfer Olddon, West Endroydon gwrsfer gwneud ydym yn sicrwng yr oedd oedon ni. Fy на roedd gynhyrchu'r cyfrnwys yn hynod o'r syniadau, fel yr argyn a'r bancan. Mae gennyn pedwyddol i Henry Ford. He said, it's well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Well let's hope we don't have a revolution, Mr Speaker, because I feel sure we're all Conservatives on this side. How's it done? Well, the process is so simple, the mind is repelled. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower's bank account, thereby creating new money. many times I've been told that this is ridiculous, even by one employee who previously worked for the federal deposit insurance Corporation of the United States, the explanation has actually taken from the Bank of England article money creation in the modern economy, it seems to me rather hard to dismiss. Today, while the state maintains a monopoly on the creation of notes and coins and central bank reserves, that monopoly has been diluted to give us a hybrid system Ac mae'r byd yn gweithio'r bydd, o'ch gwrthod, yn ei bod yn ei gweithio'r bydd, oherwydd mae'r bydd yn gweithio'r bydd yn gweithio'r bydd. Mae'n gwneud y cyflwynt Cymru, a'r cymdeithasio cymdeithasio'r bydd yn gwneud y gwasanaeth yn mynd i gweithio'r bydd. Mae'r bydd hyn yn golygu ychydig hwnnw i'ch gweithio'r byd yn gwneud ei gweithio'r bydd. Dydw i wonderful o bolig yn ddiddordebent isiw. Felly mae'r gondol hefyd yn diolch ar gyfer gallu gondol sydd byw i gyd, fel ychydig yn gweithio i gael credechydig i ddomych i views. Rwy'n gwybod i ddim yn ni'n ddweud, y ymddwn i gael a chyfnodd a'i chyfnodd, eich gyrwią a'u gwylwgot. Dwi'n gilydd. Rwy'n gwybod i'n ddweud, ac yn gweithio'r ddwy標r yn angen o gwybod eich gyfnodd ac yn mynedd. y so called currency school and the banking school. It appeared the currency school had won. In fact in practice the banks went on to create deposits drawn by cheque and the ideas of the banking school went forward. But the idea that one school or the other one really ought to be rejected. The truth is we've ended up with something of a mess. We're in a debt crisis of historic proportions because for far too long profit maximising banks have been lending money into existence as debt with too few effective restraints on their conduct and all the risks of doing so forced upon the taxpayer by the power of the state. A blend of legal privilege, private interest and political necessity has created over the centuries a system which today lawfully promotes the excesses which capitalism is so frequently condemned for. It is undermining faith in the market economy on which we rely not merely for our prosperity but for our lives. Now thankfully the institution of money is a human social institution and it can be changed. It has been changed and I believe it should be changed further and the timing of today's debate is serendipitous. The Prime Minister has explained that the warning lights are flashing on the dashboard of the world economy. Quantitative easing it looks like it will be stepped up in Europe and in Japan just as it's being ramped out in America and of course it's stopped in the UK but if anything we're not at the end of a great experiment in monetary policy. We're at some midpoint. The experiment will not be over until all of this QE has been unwound if it ever will be. So turning then to the effects on society we can't really understand the effect of money production on society without remembering that our society is founded on the division of labour. We have to share the burden of providing for one another. We therefore of course must have money as a means of exchange of final payment of debts and also as a store of value and unit of account. It's through the price system that money allows us to reckon profit and loss that guides entrepreneurs and investors to best allocate resources to the needs of society. This is why of course every party now in this house accepts the market economy. The question is whether our society or I believe our society is vulnerable to false signals through that price system. It's certainly why any flaws in our monetary arrangements feed into the price system and become permeated through all of our society. In their own ways Keynes and Meases to men who economists who never particularly agreed with one another were both able to say that currency debasement was the best way to overturn the existing basis of society. Even before QE began we lived in an era of chronic inflation monetary inflation unprecedented in the industrial age. Between 91 and 2009 the money supply increased fourfold. It tripled between 97 and 2010 from £700 billion to £2.2 trillion accelerating into the prices. You just cannot increase the money supply at this rate without profound consequences. They are the consequences which are with us today but it goes back further than this. Commons Library and the Office for National Statistics produced a paper giving consumer price inflation back to 1750. What we see is a flat line until about the 20th century when we had some inflation over the wars but then from 1971 the value of money collapsed. What had happened the Bretton Woods agreement had come to an end the last link to gold had been severed and that removed one of the most effective restraints on credit expansion. Perhaps in another debate we might consider why. I will on that. The Honourable Gentleman also agreed that getting off the gold standard and the increased supply of money enabled business and enabled enterprise and enabled the economy to grow because rather than being tied to the supply of gold there were other avenues that could be used to grow the economy. He raises a very important point and preempts some of my later questions. There's no doubt whatever that the period of our lives has been a time of enormous economic social and political transformation but so too was the 19th century and yet during the 19th century there was a secular decline in prices overall and the truth is any amount of reasonable amount of money is adequate if prices are allowed to adjust. We all are aware of the phenomenon that computers cars more or less anything that whose production isn't determined by the state. All of those things their prices become gently lower as productivity increases. This is the rise arise in real living standards. We want prices to become lower in real terms compared to wages that's why we argue about living standards. So this is a will on that. My old friend is making an incredibly important speech I only wish more people were here to listen to it. Does he recognise the or does he remember or has he read the book by Nicholas Wapshot on Hayek and Keynes which goes into this question very carefully and does he agree that we're now in a new situation in which the unpleasantness of the Weimar Republic and the inflationary increase at that time led to the troubles with Germany later on but that we're now in a new cycle which also needs to be addressed along the lines that he's just been putting forward. I'm very grateful to him Mr Speaker because I think he does emphasise that the subject at issue today is one which goes to the heart of the survival of a free civilisation. It was something which Hayek wrote about and I think it's absolutely true. If I were allowed props in the chamber I might waive this 100 trillion dollars in barbway notes and you can hold bad politics in your hand. That is the truth of the matter. People try to explain that hyperinflation has never happened just through technocratic error. They happen in the context of for example extremely high debt levels and politicians being unable to constrain them. In what circumstances do we find ourselves today where we're still borrowing broadly triple what Labour was borrowing? I will give way. I'm very interested to hear what the Honourable Gentleman's had to say but he'll be aware that over the last 30 years that the balance between wages on the one hand and capital on the other has become much more in favour of capital. So would you not agree that the way in which we tax and provide reliefs to capital is key to actually controlling that balance and that we need to do more about increasing wage levels which actually have been historically going down the way in relation to capital over a long period of time? I think I hear the echoes of particularly fashionable economists at the moment there. I mean I would if what she's saying is she would like rising wage levels real wage levels well of course I agree who wouldn't I want rising real wage levels but something about which I get incredibly frustrated is this word capital. I've heard economists talk about capital when what they mean is money and typically what they mean when they say money is but new bank credit because 97% of the money's supply is bank credit well that's not capital capital's the means of production there's a very lengthy conversation to be had on this subject that first you'll forgive me I don't want to get into today but I fear we've started to label as capital money which has been loaned into existence at interest without any real backing and that might explain why it is that our capital stock has been undermined that we've de-industrialized and actually why it is that real wages have dropped because in the end real wages can only rise if productivity increases and that means an increase in the real stock of capital just to return to where I wanted to go where did all this money that was created as debt go well when I look at the sectoral lending figures I see that some went into commercial property there were some went into personal loans credit cards and so on actually the rise of lending into real productive businesses excluding the financial sector was relatively moderate but overwhelmingly where this new debt went was into mortgages and into the financial sector now exchange and the distribution of wealth are part of the same social pro process if you buy an apple then the distribution of apples and money changes if money is used to buy houses then we shouldn't it would be a tool surprised that if you increase the supply of money into houses you boost the price of those homes that I will give away this is a it's a great debate but when you talk about ordinary people and their labour because that's money as well their labor to them it's like looking for the end of the universe when you're talking about money and capitalism and how it works to them it's just a manner of what I need money to survive and anything else is the end of the the universe right now welcome the spirit in which he's asked the question I mean the vast majority of us live upon our labour and it's absolutely true of all sides of the house because the vast majority of us live upon our labour but what do we do we work in order to exchange obtain money in order to obtain the things we need on which to survive and he's preempted another remark I wanted to make which is that there's a categorical difference between earning your money through the sweat of your brow and making money by just creating it when you lend lend it to somebody in exchange for a claim on the deeds to their house it's fundamentally categorically different and it goes to the heart of how capitalism works I appreciate very little of this is going on an election leader but I think it nevertheless matters very much indeed perhaps I'll have to ask my opponent if he's followed the debate but the point I'm making is this if a great fountain of new money gushes up into the financial sector we should not be surprised that we find that the banking system is far wealthier than anybody else we shouldn't be surprised if financings housing London and the south east are far wealthier than anywhere else indeed I remember when qe began when qe began house prices started rising in chiswick and islington the point is this mr speaker that money is not neutral it redistributes real income from from later to earlier owners that is from the poor to the rich on the whole now this distribution effect is key to understanding the effect of new money on society I think it's the primary cause of almost all conflicts revolving about the around the production of money the relations between creditors and debtors he may be aware that before the last general election the member for working on myself and one or two others attacked the Labour party's position for its lack of growth and were concerned about the level of debt if you add in all the debts of the network rail and the pension unfunded pension liabilities and other matters nuclear decommissioning etc the actual debt which is now reaching extremely high levels within the government's own stated statements are now up to possibly as much as three and a half to four trillion do you agree that that is extremely dangerous it's extremely dangerous mr speaker and it's been repeated around the world an extremely good book by the economist and writer Philip Cogan of the economist sets out just how dangerous it is his book is titled paper promises money debt and the new world order and an economist journalist is seriously suggesting that this huge pile of debt created as money will lead to a wholly new monetary system i've not even come yet mr speaker to qe and i'll try to shorten my remarks but the point is this having lived through this era where the money supply tripled through new lending of course the whole system blows up the real world catches up with this fiction of a monetary policy and so qe was engaged in now a paper from the bank of england on the distributional effects of monetary policy explains that people would have been worse off if the if the bank had not engaged in it it was of course an emergency measure but one of the things the paper says is that asset purchases by the bank have pushed up the price of equities at least as much as they've pushed up the price of guilt the bank sandy how dame said we've deliberately i paraphrase we've deliberately inflated the biggest bond market bubble in history i wonder what the honorable gentlemen's view is about quantitative easing how does he see that pattern into the great scheme of flingons i think it's quantitative easing is as i'm explaining quantitative easing is a great evil it's a substitute for proper reform of the banking system but this is the point if the greatest bubble has been blown in in the bond markets and guilt and equities have been pushed up by the broadly the same amount then that is a terrible risk to the financial system i will if i'm giving away surely there's a difference in where the quantitative easing goes to in an economy that's needed that has a demand deficit and is needing demand stimulated surely if quantitative easing is going to the pockets of those who're going to spend the money quantitative easing can actually create some more emotion in the economy but if quantitative easing is going into already deep pockets and making them bigger and larger and deeper that's a very different thing and he again touches on a very interesting issue once the bank legitimises the idea of money creation and giving it to people in order to get the economy going the question then arises why not give it to other people if you're going to create it and give it away well this going goes to what what is money well i think money is the basis of a moral existence because we should be in our lives we should in our lives be exchanging value for value one of the problems with the current system is we're not exchanging value for value something's being created in vast quantities out of nothing and given away now the bank explains that 40% of the assets bought the assets that have been inflated are held by 5% of households 80% by people over 45 which seems then very clear to me if he'll allow me seems to me very clear then that QE a policy of the state to deeply intervene in money is a deliberate policy of increasing the wealth of people who are older and wealthier give away if it's normal to him and i'm very grateful indeed that he's he's allowed me to intervene again he touched one of the words he used there morality i think on moral touches really on what the occurrence paul krugman will say that some on the right see the recession and what have you as a morality play and confuse economics in the models and sometimes you get things going economically it's not the straightforward morality money that i think he's he's touched on that and that could be one of the reasons that the recovery is taking so long conscious mr speaker that i've already used perhaps slightly more time that i intended now a little more to say because of these interventions all of these subjects are easily as my bookshelves attest capable of being explained over hundreds of pages but my bottom line on this is really that i want to live in a society where even the most selfish person is compelled by our institutions to serve the needs of other people and that institution is called a free market economy because in a free market economy you don't get any bailouts and you don't get to live at somebody else's expense you have to produce what other people want one of the things which has gone wrong is the right of ended up disfending institutions which are fundamentally statist i'll give away i'm very grateful to my own more friend for getting away and i congratulate him for bringing this really important subject to the attention of of the house will he agree with me that this candy floss credit system that the state is presiding over far from actually shoring up free market capitalism replaces it with a system of crony corporatism that gives capitalism a bad name and undermines the very foundations of capitalism well i'm very grateful mr speaker because i'm delighted to agree with my own more friend and he is despite the fact that i won't be seeing Nigel later and he's absolutely he's absolutely right that we have ended up pretending that the banking system and the financial system is free market when the truth is it is the most hideous corporatist mess what i want is a free market banking system as i'll come on to mr speaker i wanted to make some remarks about price signals but i want to really just for short on them i'll try and cover it as briskly as i can it was the subject of my maiden speech interest rates are a price signal like any other they should be telling markets about people's preferences for goods now compared to goods later if they're deliberately manipulated they will tell entrepreneurs the wrong thing they'll therefore corrupt people's investment decisions the bond markets the equity markets are there to allocate capital if interest rates are manipulated if new money's thrown into the system those prices get detached from the real world values they're supposed to be connected to what resources are available what technology is available what people prefer but problem is these prices which have been detached from reality still continue to guide entrepreneurs and investors but if they're now guiding entrepreneurs and investors in a direction which takes them away from the real desires of the public the available resources and the technology we should not then be surprised if we end up with a later disaster in short if after prices have been up through been bid up by a credit expansion they're bound to fall when later the real world catches up with it it's why economies now are suffering this wrecking ball of inflation followed by deflation and here is the rub because throughout most of my life the way that the monetary policy authorities have responded to these corrections has been to pump more new money previously it's been through ever cheaper credit now it's been through qe this raises the question of where this all goes back to the point my uncle friend for stone provoked in me that this might actually be pointing towards an end of this monetary order now that is not necessarily something to be feared because the monetary order changed several times in the 20th century where i want to conclude Mr Speaker is we've ended up in really something of a mess the governor asked whether the orderlyness of the transition sorry he was talking about the orderlyness of the transition once interest rates normalise he said it whether it would be orderly was an open question i think he's actually demonstrating considerable optimism appropriate to his role i think it's extremely unlikely that we'll have an orderly transition once interest rates start to normalise the problem is basically that government wants to spend too much money it's always been the same throughout history governments used to want to fund wars now for all good moral decent humanitarian reasons we want to fund health welfare and education well beyond what the public will pay in taxes that's meant that we needed easy money to support the borrowing i'll finish by saying well what's to be done a range of remedies are being proposed they range from positive money's proposal to completely nationalise the production of money some want variations on a return to gold perhaps with free banking and some want this spontaneous emergence of alternative monies like bitcoin i just would point out that water badgel is often prayed in aid of the current system if one reads lombard street he didn't actually support central banking he thought it was useless to try and propose any change but what we see today is that with alternative currencies like bitcoin spontaneously emerging it is now possible through technology that in a generation we won't all be putting our money in a few big mega banks held as liabilities issued out of nothing now i want to propose three things which i think the government can practically do the first is to continue the present trajectory of reform after 15 years of studying these matters and now having made it to the treasury committee i'm ever more convinced that there is no way to change the present monetary order until the ideas behind it have been tested to destruction and i do mean tested to destruction and it's an extremely serious issue but it will not change until it becomes apparent that the ideas behind the system are not tenable secondly very much with that in mind we should strongly welcome what andy how dain has said the chief economist of the bank that they would commission anti orthodox research they will put into the public domain research and analysis which has often challenges as support the prevailing policy orthodoxy on certain key issues he said it is that research which will make possible fundamental monetary reform after the next calamity thirdly we should welcome the chancellor's recent interest in crypto currencies and making london a real centre of financial innovation in perfect and possibly doomed as it may be bitcoin shows us that peer to peer non-state money is practical and effective i've used it to buy an accessory for a camera perfectly ordinary legal product it was easier to use than a credit card and it showed me the price in pounds or any other currency alike it is becoming possible for people to move away from state money so what i would like to see is every obstacle to the creation of alternative currencies within the ordinary commercial law removed we should expand the range of commodities and instruments related to those commodities which are treated like money like gold so exempt vat and capital gains tax and it should be possible to pay tax in those new monies and we must not fall into the trap that the united states has fallen into of obstructing innovation it looks like in the case of the liberty dollar and bernard von not house that a man may spend the rest of his life in prison simply for the crime the supposed crime of creating reliable money finally mr speaker we are in the midst of an unprecedented global experiment in monetary policy and debt it is likely as phillip cogn set out that this will result in a new global monetary order whether it will be for good or ill i do not know but as technology and debt advance i am sure we should be ready for a transformation society has suffered too much already under the present monetary orthodoxy free enterprise should now be allowed to change it order the question