In this episode of SystemShift, Ann Pettifor demystifies the complex concept of money creation in modern economies, which is no longer backed by gold reserves held by central banks. Pettifor uses accessible imagery and language to explain how money, history’s most misunderstood invention, was created and sets out her diagnosis of the problems plaguing the world’s monetary system. She also offers a prescription for how these issues can be fixed. Pettifor discusses how commercial bankers can create credit without limit and with minimal regulatory constraints, and she proposes introducing controls on international capital flows to address these issues. She also critiques fiscal austerity and argues that democracies must reclaim control over money production and manage the finance sector in the interests of society and the ecosystem.
SystemShift is a must-listen for anyone interested in the urgent need to transition to a sustainable and equitable economic system that benefits everyone.
This podcast comes to us from Greenpeace Nordic and is hosted by Greenpeace Sweden campaigner, Carl Schlyter. Listen on Apple Podcasts, Google Podcasts, Soundcloud, Spotify, YouTube, or wherever you get your podcasts.
Below is a transcript from this episode. It has not been fully edited for grammar, punctuation or spelling.
Carl Schlyter:
Welcome to SystemShift, a Greenpeace podcast that explores new ideas and thinking on the economic system change for sustainable future. In this episode, we are joined by economist and writer, and activist Ann Pettifor. Ann has been working for decades to bring attention to how our economic system is driving the destruction of our planet. She is a harsh critic of fiscal austerity and argues that democracies must reclaim control over money production and manage the financial sector in the interest of society and the ecosystem. Ann is perhaps best known for correctly predicting the financial crisis of 2007-2008, based on her understanding of the instability of the deregulated financial system.
In this episode, Ann demystifies the complex creation of money in modern economies, because the money is not anymore backed by gold reserves held by central banks. She will explain to us how we have arrived with the system that allows commercial bankers to create credit without limits almost, and with minimum regulatory oversight.
We will also talk about the Bretton Woods Conference in 1944 establishing a new global economic order with a fixed exchange rate system that provided stability for a long time. However, by the seventies, it had given way to the unrestrained growth and deregulation that so devastatingly drive environmental degradation, inequality and other social economic problems. Fortunately, Ann has a prescription for how we can get out of this dilemma. Her proposed model includes massive investment in renewable energy, sustainable infrastructure and social welfare programs. All this funded through a new system of international monetary cooperation that doesn’t create inflation or debt and is active in many social justice movements.
Ann was one of the leaders of the Jubilee 2000 debt cancellation campaign, which aimed to cancel the depth of the world’s poorest countries. We will hear about her latest campaigning work to end financial speculation that is driving up prices on food and energy for consumers, while multinationals continue to reap the profit from global crisis.
Join us as we delve into the important topic of economic system change and learn from one of the most inspiring voices in the campaign for a kinder, more sustainable economic system. So without further ado, a warm welcome to you Ann Pettifor.
Ann Pettifor:
Thank you very much, Carl. Great to be here.
What is money?
Carl Schlyter:
Yes, it’s really nice to have you here because there are some topics that you normally speak about that I think many people are wondering about, but actually not understanding, such as what is money?
Ann Pettifor:
Right, well we can. That is a deep dive. Let’s do that quickly. I you know, I’ve been struggling to explain, my mission is to explain this to people. There’s a lot of confusion around money because of crypto, MMT and so on and so forth. I am a monetary Keynesian. I think Keynes was one of the few who really understood money. I just wanted to make clear that’s where I stand. Money is nothing more than a social contract, a promise to pay. That’s all it is. When you think about it, 5000 years ago, they had credit systems in villages. In the village, I would be good at haircutting and you would be good at thatching a roof. I would cut your hair, if in exchange for that you thatched my roof. Right. The problem became if after I’ve cut your hair, you decide you go on a drinking blah and you don’t. You don’t thatch my roof. So for that, we had a chief in the village, and the chief in the village would look at all the promises and say, Oi, you owe her to thatch the roof and get it done. That was the credit system. You always had it regulated. You always had a chief or a high priest or whoever it was that managed this. Then if strangers came to town, if strangers came towards the village, there was no trust, and there was no regulation, and then you engaged in barter, then you said, sorry, you know, in exchange for this, I would like a pig, or a chicken, or whatever it was.
We’ve had credit systems for more than 5000 years, and for me, I’m a great admirer of this. I think it’s one of humanity’s greatest innovations, was the social construct that is money that enabled us to do more than what we could do with barter. But, the truth of the matter is that it is a system. It is a system first, it’s not printing money, you know, because it’s a social contract. I promise to pay. All that you often need is some sort of evidence that you that your promise can be upheld. If I wave a card at a coffee machine, the card is saying you can trust Ann Pettifor to pay for this cup of coffee, signed the bank. I know she’s got money in the bank. She can pay for this. That is all it is. Even a £10 note or that or a euro note is just a signifier of those promises to pay. The problem is, once the promises start circulating, it’s quite difficult to remember the origin.
The thing about credit is based on the word credo, I believe I trust. If you have a money system, a monetary system in which trust is absent, you get chaos essentially, and you get the sort of mess we’re in at the moment. Trust is something that, you know, doesn’t come natural to human beings. We are quite untrustworthy. I speak for myself. I’m inclined to cycle through a red light if I think I can get away with it. You know, so we are breaking regulations, so we need an enforcer, if you like. Someone who opposed trust. We have a legal system that does that. We have a contractual system that does that. We have regulators that do that.
Now, the whole thing at the moment is that neoliberalism said take away all the regulators, take away those who hold the seat up, take away the trust. You don’t need trust. That’s why you have crypto, because crypto was designed to be built on an untrustworthy system with no regulation. That’s why crypto is so corrupt and fraudulent and why it’s blown up and bankrupted so many people. This system of trust is a system. Again, money doesn’t operate independently of it. Money is part of that system. Now, the thing is, when you remove all the regulation over credit and you make it possible for people to make endless promises to use collateral, to say, Look, I have a hut in the village and I’m using this as collateral. Can you give me more money? Can I borrow more? Can I leverage that collateral? Then that enables you to raise more and more and more credit?
Whereas, in the days of Bretton Woods, the bank manager would call you in and say, How are you going to spend this credit? Are you going to go and gamble on it? Are you going to abuse it to buy booze, or are you going to invest in something that will generate income? Nowadays, the bank manager doesn’t ask those questions anymore. It says, you know, I’ll never forget talking to a banker when I complained about this. He said, yes, when you drive into a petrol station and you fill your car with petrol, the petrol station doesn’t ask you where you’re going. In exactly the same way, he said, bankers don’t ask you how you’re spending your money. I said, I’m sorry, but I think those are two very different things. Even so, I think we need to limit the use of petrol.
Carl Schlyter:
But I also think an interesting part here is that when you talk about the leveraging thing, because it’s okay if the bank had €1 and it landed €1, then the bank took the consequences if it lost this euro. If it can lend more than the one year it has itself, then if we don’t know where this money is going, you risk a financial collapse.
Ann Pettifor:
Yeah. So now, Carl, the key thing is this the bank doesn’t lend savings. It doesn’t lend money that’s already in the bank. It creates money and it does so if you think about it, when you apply for a mortgage for a property, the bank doesn’t have, you know, €1,000,000 in the bank. It’s not sitting there, with Mrs. Jones savings which it hands over to Mr. Smith. No. What the bank does is into numbers, into the computer and transfer them to your account. Of course, as we are all digitized, we know this right? So there’s no question of, I’m using money that I already have to lend. I’m using my power to create money to lend you and I’m not asking questions about how you are going to spend that money.
Leverage, collateral and credit in finance
Carl Schlyter:
I think. That’s crucial. It is crucial that people understand because they honestly thought that the money the bank lends, that they actually had in their coffers. If people don’t understand and certainly politicians don’t understand this, then they will fail to regulate this high risk taking of the banks.
Ann Pettifor:
I think it’s a conspiracy, Carl. I think that we’ve been telling each other these lies for reasons that suit the finance sector. I’ll never forget when I was in the middle of the financial crisis, I was in New York. Tim Geithner, who had been an adviser to President Clinton and was now on the board of the Federal Reserve, wrote an article in New York Times in which he said, Oh, the bank has to use savings carefully to lend to others who need savings. Who are less patient, who are impatient and need those savings for holidays or building or whatever. I thought, how can a member of the Federal Reserve of the United States not understand money? What made it doubly ironic was almost at the same time, Ben Bernanke, who was the governor of the Federal Reserve and who, by the way, last year was given a Nobel Prize by the Swedish. So he, Ben Bernanke, he is interviewed by television program for the first time. At that point, they just bailed out an insurance company called AIG. The interviewer says to Mr. Bernanke, now, Mr. Bernanke, where did you get the money from to bail out AIG? Did you get it from taxes? He said, no, no, no. He said, we have something at the Federal Reserve that’s present in every single bank. He said it’s called a computer. We enter numbers into the computer and we transfer $11 billion to AIG. It wasn’t quite as simple as that, because AIG had to promise to repay, AIG had to offer collateral, and AIG had to sign a contract. Furthermore, they were given that money and charged interest on it, which in the end Federal Reserve made a profit out of. Even so, he understood something that Tim Geithner, who is one of his board members, did not understand.
Carl Schlyter:
The funny thing it was a collateral means that in daily use you would say maybe security or so.
Ann Pettifor:
So yeah, yeah. Like your property serves as collateral when you want to borrow more.
Carl Schlyter:
Yeah, exactly. Well, when money is generated in this way. You have an expansion of the financial sector. This expansion in the way it generated because of the ownership of the financial sector is very unequal. It’s often so that growth in a neoliberal economy also at the same time automatically increases inequality but all its negative aspects. Could you explain a little bit how this works?
Ann Pettifor:
Well, the point is this. If you have the power to create credit ad infinitum, then you have the power to expand consumption and production ad infinitum. That is why we cannot create credit ad infinitum for infinity, for, you know, infinite amounts of credit. So there’s a direct link for me, it’s a bit like the petrol analogy, which is you’re pouring fuel into the economy. It’s fueling consumption and production and extraction and you’re saying, Oh, we’ve got to dampen this construction in this consumption, but you’re keeping the fuel going basically, and that is credit and it’s unregulated credit and it’s even worse than that Carl. I mean, don’t get me started on the shadow banking system.
The shadow banking system
Carl Schlyter:
I will get you started on this because it’s important that people see that without reform of the financial system, we will not win the battle on socially just and ecological transition. So I think it’s really important that we do dwell on this.
Ann Pettifor:
Yeah. So, you know, I mean, we can come back to debt in a moment. But after the financial crisis, a high street bank, you know, all the banks were very insecure at home, on the high street, the main street, the governments intervened to protect the savings of ordinary people. And in Britain, I don’t know what it’s like in Europe, but in Britain it’s up to £80,000 is guaranteed by it’s about hundred Thousand Euro in Europe normally. Now a bank, an asset management fund, a hedge fund, or a private equity firm has a little bit more than £80,000 to play with. Right. They have in the case of BlackRock, they have something like $6 trillion that they manage. So they can’t put it in a high street bank because $6 trillion in a high street bank blows up, you’re in very deep trouble. So instead, what has happened is they’ve invented something called the shadow banking system, which is a system that operates out there in the stratosphere. It’s invisible and there they are lending money to each other, a borrowing and lending, and they’re using collateral to increase their lending to leverage their borrowing. Leverage means to increase. They’re looking for collateral because you need a lot of collateral when you’ve got $6 trillion. Pension funds, for example, have collateral. It’s called it’s called a pension fund. It’s my pension I’m paying every year premiums on my pension. It’s a fantastic asset because I know I go on paying and the firm will go on paying it for the next 30 years.
Carl Schlyter:
That is also not as safe as one can imagine because this pension fund is in the stock market. It can obviously go down also.
Ann Pettifor:
Yes, but the shocking thing is this when we come back to credit and credit creation is that it is possible for those institution to use this collateral, which is one piece of collateral. They borrow against it once and then they borrow against it again. That’s as if you had a house and you said my house is worth €100,000 and I’d like to borrow another €150,000 and the bank gives you €150,000, then you go and gamble the money and then you go back to the bank. You say, could I have another 150,000 against the value of my house, which is only 100,000, and the bank gives you another 100,000.
Carl Schlyter:
And then you do this to four other banks at the same time.
Ann Pettifor:
Exactly. That’s what’s happening out there, Right. We are not even aware of it. We don’t care. We much rather focus here on this thing what I can see here on the floor by me right now, either my own domestic household concerns or my own national government concerns going thinking about them. We would none of us do it. They are so happy that we ignore them. They are so happy that mainstream economists ignore them. They’re happy nobody bothers them and they have a wonderful time out there. Every so often, they bring about a massive crisis, as they did in May 2020 at the height of the pandemic, and they had to be totally rescued by taxpayers.
Carl Schlyter:
And this is what I mean, they might play around up there, but the people building the safety net is actually the ordinary taxpayer and the state. This costs us a lot of money to do this. And all the risks they take up there in the stratosphere, it’s actually having negative impact on society because we need to prioritize saving the financial system rather than saving people and other important issues. So this was not used to be the case. This was usually not possible before you mentioned earlier the Bretton Woods system, I think you should maybe explain a little bit how it used to be.
Bretton Woods
Ann Pettifor:
Yeah, you know, we had globalization back in the 1920s and thirties. We had it in 1800s, We had it in the 1700s, basically. What globalization is, is governance, if you like, by the bankers. Just to put it crudely, right now, we are governed by these guys. They decide on our interest rates, they decide on the value of our currency, they decide whether to invest in our economies or not. They supposedly look after our pensions. You know, they might as well be the government.
Carl Schlyter:
But also they indirectly decide the housing prices because they create asset inflation with what they are doing.
Ann Pettifor:
So they create inflation, all of that. They’re mainly based in Wall Street, but they’re also in Frankfurt and also in the city of London. That was the situation in the 1700s, in the 1800s, in the 19th century and in the 20th century. Then in the 1920s, we had a series of crises, a cascading crises, poly-crises I think they call them now. Society woke up to it and including the man I regard as my mentor, John Maynard Keynes, he understood money. He understood how the system worked. After the First World War, he desperately tried to rebuild Europe under a more stable system than we had before the war. He was defeated, if I may say so, by Wall Street. But, in the twenties and thirties, after series of crises, politicians and in particular, President Roosevelt in the United States woke up to the threat that the system posed to domestic economies and Roosevelt said: Look, I’m not playing ball anymore. I want Wall Street to hand over all their gold to the Treasury. I’m moving the government, his finance minister, his chancellor was called Morgenthau and Henry Morgenthau said, I’m moving the government from Wall Street to my office at the Treasury because we, after all of the elected representatives of the people and he transformed the American economy. It didn’t go very smoothly and Roosevelt was no angel. There were problems, but it began to stabilize.
Carl Schlyter:
Neither was actually was Morgenthau because he wanted to punish the Germans very hard after the Second World War, too. Yeah, everybody has their flaws, but they made a really important change, though.
Ann Pettifor:
They began the process and then in 1944, one of the best things Roosevelt did was to convene this conference at Bretton Woods. What I like about it is that he refused to allow any banker to attend, and very few people know that. He only had economists and he had economists from the north and the south come. Everybody were there, the Russians were there, the Indians were there, the Chinese were there, the Latin Americans were there as well of course, as the Americans and the Brits and the Europeans. That’s when they began to reform and transform the financial system. I have to tell you that Keynes was defeated at Bretton Woods by whites, who was the United States government, because the United States at that point realized they were top dog and they wanted to have control of the world’s reserve currency. He thought that was a big mistake and was a big mistake. But the minute they left Bretton Woods conference and they went from Bretton Woods in New Hampshire to Washington, the bankers started to fight back and they started to dismantle the system. Anyway, for 30 years or so, we had a period in which the bankers were subordinated to the interests of society, where governments and society had more control over interest rates, capital flows, the currency and so on.
Financial regulation & Capital Controls
Carl Schlyter:
We, to put it simply, we had a regulated financial system. What I think is important here is also that it was possible you had an unregulated system and then you regulated it. We saw that in the years after this actually social justice increased, welfare increased. You had a lot of really positive effects.
Ann Pettifor:
Except growth increased. There was a problem. I’m not saying, you know, nothing is perfect. At that point, they didn’t think growth was the problem. The thought the problem was high unemployment and, you know, farmers going bust because the prices of their goods would collapsed and so on. Food supply was an issue; they were worried about the rise of fascism and war. They had other preoccupation.
Carl Schlyter:
That was very justified, as was for a large segment of the global population at that time. Still, increased growth, i.e. transforming natural resources to commodities and welfare was actually something useful. If it was shared, it increased people’s wellbeing. Now we have this rampage, uncontrolled shadow banking system and financial sector at the same time as the growth that it try to generate is also not only breaching social limits, it’s also breaching ecological and climate limits. So now, we have a system that is completely, incorrectly designed for our current needs. So now, yet again, we need to have a new conference or we need to change the system. If we do, what are the crucial parts of such a change you would like to see?
Ann Pettifor:
I don’t think it’s rocket science. First, you know, the point is this that what will bring transformation and I only wish and hope that reasoned debate will get us there. The reason I do what I do, because I think if people understand better. They will demand that politicians do the reasonable thing. The reasonable thing is capital controls. Now, we already see China exercises capital control. You can’t just pull your money into China and flooded out again. That’s not allowed. They don’t allow it. They defend the interests of their people. We’ve seen capital controls apply in Russia, for example, now for the war. These are things that are not impossible to apply. But, the finance sector hates the very framing of them. I have to be frank, I don’t like to use the word controls. I prefer to use the word manage. We’ve got to manage flows of capital across borders. It may be that we want to send capital to Africa to help them with transformation, but the question is how much? For what purpose and how?
The fact of the matter is that Keynes, back in the 1930s was very, very clear. He longed for the euthanasia of the rentier he called it, that people who make money just by renting out property or works of art or racehorses or software, right. And sit on their butts and collect the rent from software. He thought that was awful. He thought you had to invest your money into something productive and useful and so on. So, we must begin with that, you know, with terms and conditions for what capital should be used for. You can’t use it for gambling, you can’t use it to mess around with crypto because you’re going to bankrupt innocent citizens if you do. The question is not control so much as management. I always say, can you imagine it’s the chief executive of Apple, Mr. Cook. I think his name is Tim Cook. You’ve said to him you should leave your business to the invisible hand. The invisible hand will know how to deal with you. You’re crazy. I manage my business. I manage Apple. I manage the prices. I manage where it’s produced. I manage everything. But governments are expected not to manage anything. You know, I want us to see management of the financial system.
Carl Schlyter:
I think a good example of that is when during the dotcom bubble. 20 years ago or so, the banks yet again were in a dire situation. One of the elevations the politicians did then was to deregulate food speculation and we saw very negative effects of that. So managing food speculation and managing financial flows in a way that did directs them to serve the purpose of society and within the framework of ecological boundaries. That sounds nice, but how would you do that? What kind of managing would we need, so to speak? So what is needed?
Ann Pettifor:
So Carl, it so pertinent because just this week we won a victory in the European Parliament. We don’t know quite how far it goes, but we know we’re getting there. That’s because a coalition of European NGOs came together and we argued that we have inflation at the moment because of the massive increase in the price of oil, energy and wheat grain. Of course the mainstream economists and all of our leaders and politicians argue, well, that’s because there’s been a cut in the supply, an increase in demand, it’s supply and demand, and that’s not the case. Supply in demand plays a role. But, we know that if you cut the supply of oil here, it pops out over there as sure as night follows day. And there’s been no shortage and the Americans are pumping oil and exporting it and LNG and so on and so forth.
Commodity futures and their impact on inflation
Carl Schlyter:
I think an interesting example of that is in one week after the invasion of Ukraine by Russia, the wheat commodity futures prices to a 72% degree was not linked to parties who wanted to trade in wheat, but was contracts generated only by bankers only for speculation. As an example of why the price increases went up.
Ann Pettifor:
Exactly. So we’ve been arguing that we said that there’s two markets, for example, for oil. There’s something called the wet market. When there is a company like Shell that has to sell oil, who’s really go out, they go out and trade and buy barrels of oil. Then there’s the paper market for oil and that’s the market where I’m sitting on pension funds. I want to make a quick buck. I going to make a quick profit. I’m going to throw my money at grain prices or oil prices and sit on my butt and collect the interest on that and the capital gains. That’s what they did. The wall of money that was aimed at these finite resources, oil and grain. Energy and grain caused those prices. Now the market for that is fixed by something called the Chicago Mercantile Exchange and also Wall Street. The commodity markets are global. I always like to explain this in terms of Elon Musk builds motor cars, he fixes the price of the motor car, whether he sells it in London or whether he sells it in Sweden or in China basically. Those prices are determined by him and his firm. Putin can’t fix the price of oil, nor can those powerful Saudi sheiks, nor can BP nor can Shell. They are victims of the price of oil. The price of oil is determined largely by speculation on those markets, and they are losers as well. I get into trouble because I defend.
Carl Schlyter:
I think we need to explain a little bit how this works. What happens is that a person in the bank believes that something will be going up or down in price and then they don’t actually buy oil or grain. They produce a paper of a future promise to pay a certain price. For many commodities of the world, like we create more pigs in banks than in farms. We create more oil in banks than in oil fields. This is what people tend not to see often.
Ann Pettifor:
You know, so this is gambling. This is saying I’m betting that the price of oil or the price of grain is going to rise or fall. I can win when the price falls that I could win when the price rises, depending on the bet that I’ve taken. Sometimes I bet both ways. And the fact that people make money out of gambling, you know, I mean, we all disapprove of people who become gambling addicts, but we have gambling addicts running the world. So we argued this to the European parliamentarians. So, we’ve tightened up, we hope, on some of what are called the MiFID regulations. It’s possible with political will to rein in these guys. One of the things I mean, it’s quite hard because it’s very hard to tell how much money is going there, because a lot of that money is secretive. But we can say sorry but you can, individual firms, including pension funds, can only have so much money invested in that kind of gambling so they don’t take risk. There are lots of ways in which you can manage that. Personally, I would like to forbid it altogether, but for the moment, you know, this is what we achieved, this victory in in the European Parliament last week.
Carl Schlyter:
Well I would and to agree with you, I mean, I can understand you want to have a future contract. If you want wheat in three months from now, it’s okay to say, I want to buy this wheat at a certain, your hedge your bets and that’s logical. You want some kind of safety and in your flows of of both raw material and money, that’s fine. But what we are talking about here is just generating speculative trades with no purpose of using this commodity at all. It’s only pure gambling and I don’t see why it should be so controversial to ban this. And people say, Oh, this would damage the liquidity, but come on, if people would need grain or whatever commodity, they will buy it anyway. And you know, the capital will flow there then.
Ann Pettifor:
Sure, and the point I want to make is this, this is where what’s happening in the Stratosphere the remote part of the financial system, which is invisible, is like lightning and comes back and hits us here on the ground when we’re trying to buy bread. When people in Britain are going to food banks, when you know, we have inflation, we suffer, and we blame wages, we say, oh, the workers have been demanding too much pay or we blame even prophets. I think we can do. I’m not saying that both don’t in some ways contribute to inflation, but we never blame what’s going on out there. That’s because we don’t look at it, we don’t see it, and we don’t try and understand it. But its impact on our daily lives is immense.
The Green New Deal
Carl Schlyter:
How often do you, in the political debate hear that the prices of bread is too high? So I want banking regulations. I want financial regulation. You never hear that. But that’s a problem of people not seeing these links. So what we hope with today’s episode is a little bit opening people’s eyes to the negative impact in your daily life on inflation, on your you know, possibility to afford a living.
Ann Pettifor:
Yeah, and on the ecosystem.
Carl Schlyter:
We haven’t even really started to talk about the ecosystem yet but I think it’s really important because if you allow this massive speculation and this massive profits, this money, will you know, exploits workers and nature when they are when they are used later. I was a bit worried when I saw the book you wrote the Green New Deal, because it can mean anything. It can mean a techno optimistic green growth scenario, which is completely unrealistic. And it can mean business as usual. You just swap fuel for another exploit, like you change oil for biofuels and you exploit nature and destroy that. So but when you talk about the Green New Deal, it’s more interesting, I think, because you see the systematic problems. Would you tell a little bit about what you see as a Green New Deal could look like?
Ann Pettifor:
Yeah, I mean, one of my disillusionment is that lots of people have picked up on the Green New Deal, but they don’t touch the finance sector. Yeah, that’s so ironic. When I look at the American green new deals, they don’t go near Wall Street. They don’t dare to challenge Wall Street. The whole of the New Deal, you know, Roosevelt was inaugurated as president on a Saturday afternoon in March 1933. That night, he comes back to the White House and he says to his staff, we are going to dismantle the global financial system. At the time, it was defined as a gold standard. I want you to go to Wall Street and tell them to hand over their gold. And the staff said, you know, I’m terribly sorry, we can’t do it because tomorrow’s a holiday. It’s a Sunday. You’re going to have to wait till Monday. And he says, you know, I can’t wait to do this. Anyway, they have to wait till Monday and they closed the banks. The story that’s always told, oh, they closed the banks to fix the banks. Oh, no, they closed the banks to get the banks the opportunity to go into their vaults and take the gold and get out. For them to understand that now that the banks, Wall Street was no longer in charge of the economy. That was the first thing he did for the New Deal. Then that gave him what we any economics called policy autonomy. He was not able to make policy without referring to Wall Street, essentially. It’s never quite so simple, but I think to understand the theory, that’s what he did. He was given greater powers and his treasurer was given greater powers, and they had to tackle massive unemployment, bankruptcy, farmers burning their fields down because they couldn’t get a decent price for their produce. They had a massive ecological disaster, which was called the Dust Bowl. And, you know, he then embarked on a labor intensive strategy of mobilizing all those unemployed people into groups and getting them to plant trees. Now, there were problems because they were all white men. He wouldn’t allow women to join and he didn’t allow black people.
Carl Schlyter:
And so often monocultures of trees not only people.
Ann Pettifor:
All of that was problematic, but they addressed the fact that through excessive agriculture and extraction, they had almost destroyed the land, the viability of the land of whole swathes of United States. So he tackles unemployment, an ecological crisis. He provided money for the arts. In The Grapes of Wrath, which is a famous book, John Steinbeck writes of the Depression. John Steinbeck got a grant from the government to write the book. Go and sit down for two years. We’ll guarantee you’d be paid for two years. And you can write a book. I mean, can you imagine the magic of that? So they did all this and with all the problems associated. I’m very clear that for me, the Green New Deal was you first tackle Wall Street, then you look at your other problems, and if you try by looking, first of all, of the ecosystem and trying to fix that, but you don’t touch the financial system, then forget it. I’m not saying my arguments are perfect and I’m not saying that I’m right on everything. There’s a lot of flaws in my book, but it’s different in that sense. I’ve been very disappointed the way in which the Green New Deal has been used as a kind of I don’t know, you know, it’s been wonderful to have something, an umbrella, if you like, under which we all stand and we say we want a new economy, we want a new financial system. That’s a huge thing. I think we’re all together. You see the Green movement in my experience has been splintered into millions of tiny little different units all over the world, and we never made enough of an impact because we weren’t clear about what we were asking for.
The first step to change
Carl Schlyter:
You mentioned on passant little bit, like we have no chance to solve the environmental problems unless we do this. We will fail to protect climate, biodiversity and social justice unless we do a reform of the financial system. That’s totally clear. I completely agree with you there. What positive examples that you have seen recently or that you would propose that are reasonable to make politicians understand, actually do, and make people understand and actually request. What would you say are some concrete steps we could take today.
Ann Pettifor:
You know I, I mean, I was so encouraged by this European Parliament thing this last week. The point is that I am really quite negative about this because I can’t see the positive next steps. You know, the positive next steps is to have politicians who understand this and who decide to get a grip on Wall Street and on the finance sector. We don’t have those. You know, we have politicians who tell us, sorry, we there is no money and we know that money is a social construct that we can promise. Our problem is we can make promises. The question is there is a limit to our promises, unless is an ecological limit. But within those limits, we can make promise. I promise. I’m going to retrofit my house. I’m going to go and find the mud. I can make bricks here. I can use my labor and so on and so forth and get straw. We could together make something happen. I can promise to do that within those ecological limits possible. But our governments are saying to us, sorry that we must have austerity because there is no money. Sorry. Yes, we did find, you’re quite right. We did $20 trillion in 2020 to bail out the shadow banking system that we could find $20 trillion to employ people to end poverty and inequality and to protect us from the big threat that is coming, which is climate breakdown. Right. So I was criticized in new left review this month who said, oh, the book is all very well but she doesn’t offer any agency, political agency. And it’s true. I don’t see the way forward. What I’m convinced about is that understanding, knowing what the problem is, is one way we can begin to build the pressure if we don’t even know there’s a problem, we don’t even know there’s a stratosphere. How can we campaign on it? We like to campaign on the tangible stuff that we can see. Campaigning on something we can’t see is much harder. But if we did as we did this last week, then, you know, the change would be significant. So that would be the reasonable way. The unreasonable way is to have fascism, authoritarianism and another catastrophic war. That’s the other way. We’re going to get change.
The power of collective action
Carl Schlyter:
I think that’s also interesting. I mean, already Hannah Arendt warned about the rise of fascism. If the elites can projects false image in people’s heads about what things are and I think when we come to the financial system, we have been projected a false image. We need to be clear about this, that what we do have is a poorly regulated casino based system with extreme risk taking, where the consequences of the risks are taken by poor people around the world, by average taxpayers and the environment. Unless we see this we will not ask for demands and changes. So I totally agree that understanding this is really important. Then we also see people want to take action. They want to do something. If I listen to this podcast, I start reading your books, I start understanding the system and I say hang on a second. This is really flawed. What is my next step?
Ann Pettifor:
And then I’m stumped about that, really. I mean, the next step is for us to get together. The next step is for me, for the Green parties and progressive parties to pull us together. I think it has to be political. You know, political means power. We’ve got to take power. We can’t be nice to each other and form little voluntary groups and be kind to each other. That won’t do it. We have to get involved in the dirty business of gaining political power. And the best way to do that is to combine, to come together. I mean, if we can come together with people who are already combining like the trade unions or the churches, then we will have institutions around which we can organize. But it has to be political organization. And I don’t see political parties tackling these issues seriously enough. And the thing that inspires me and the reason I can keep going, because it could be depressing, was when I was helping to lead the Jubilee 2000, when we began and people said to us, How are you going to explain to the public, to cancel the debts of foreign countries, remote countries? And how do you explain the international creditor debt sovereign debt system, to ordinary people? You know, they’re not going to get that. When I was employed to do the job, I said, that’s what you should do. And I said, and I’m talking here about people like the heads of Oxfam and so on. So you can’t do that. You know, it’s too complicated. And I said, I don’t agree. It’s not complicated. And the proudest moment for me was when the Treasury under Gordon Brown, a very senior official, came to me and said: Ann what the hell is going on here? We’re getting letters from women on pink pieces of paper with a little bunch of roses in the corner saying Dear sir, I understand that you are renegotiating Uganda’s debt and that you’ve arbitrarily chosen this date for the calculation. He said, how do they know about this date? How do they know we’re doing this? I said, it’s not rocket science. You we just told them. And when she sat her kitchen table and wrote this letter to Gordon Brown to say to him, I’m watching you and I know what you’re doing, you know, the Treasury had to employ staff. Gordon Brown had to respond, Blair had to respond, and so on and so forth. So awareness itself is empowering, people become empowered by better understanding and better knowledge. Then we have to organize and I’m getting old now. I can’t do the organizing, but I would love to see that mobilization and organizations take place. I mean, I think it’s because I saw how ordinary people became empowered and how they was so keyed up. This knowledge they want to understand. Nobody bothered to tell them before about these arrangements. Of course, we had a lot of hostility as well. You know, we would stand on the street campaigning. People said, Well, I wish you’d pay my mortgage, or Why did you pay? Why do you want to pay off the debts of those corrupt black African countries? I often say that Jubilee 2000 was really an anti-racist campaign. Then you’d have to explain, well, why did our government lend them the money? Why did our banks lend them money if they are so corrupt?
Carl Schlyter:
And might remind you of them as quite often dictators.
Ann Pettifor:
Yeah. Why did we give Nigerian dictators money to buy our weapons? You know, ask yourself the question. And people, when they did, they said, Oh, right, got it. I understand. And one thing. So, you know, we had this demonstration at the G8 in Birmingham in 1998, and Blair was there with Helmut Kohl and Bill Clinton and Yeltsin from Russia. And we said we were going to have a demonstration. So they said, Right, we’re going to fool these people. We’re going to take the leaders out of Birmingham and we’re going to a castle in the countryside. So on the day when we were all coming together to demonstrate, there were no leaders. So I think they thought they would kill the demonstration that way. But what had happened was 3000 journalists were in Birmingham too, because there were journalists from all over the world and there were no leaders. So they came to us and they said, What’s all this demonstration about? Blair was forced to fly back to Birmingham to meet with us precisely because they realized they had made this incredible public relations error. You know, but what it showed you was the power of the crowds, the power of the people. We managed to make these people eat humble pie. Then after that he went and helped to organize cancellation of the debts. We canceled about $100 billion in nominal terms of debt owed by about 30 of the poorest countries. It’s no small beer.
Carl Schlyter:
This is important, I think, for people to feel that we are not powerless. You might start organizing yourself around the kitchen table and then in larger and larger groups, and when more than two and a half percent of the population is on the streets demanding something, it rarely fails. and we are all part of this.
Ann Pettifor:
Let’s rather go that route, then go down the fascism route really. So for me, what a lot of what we’re seeing at the moment is the famous Polanyi analysis. I don’t know if we have a minute or two on this call. Polanyi argued in the 1930s that the gold standard, which is the globalization of the thirties, so badly impacted the ordinary people in the street that they started to demand to be protected. The Social Democrats said, sorry, we can’t do anything about that. You know, the gold standard, we must have the goals, the labor Party in Britain said, no, no, we defend the gold standard. So people said, well, if you’re not going to look after my interest, I want someone who will protect me. My job, my house, my property, my kids. And if you won’t do it, I will look for a strong man or woman who will do that. Shey look to Hitler. They are looking to Modi in India. They’re looking to Putin. They’re looking to Bolsonaro to Trump. Now, you know, you can argue whether or not these men are strong or not, but they are promising to protect the people in the Rust Belt with a Mexican wall or with an attack on China. Do you see what I mean? So already we’re seeing the consequences of the financialization of the economy. It’s making people want to defend themselves to be protected. And our political class doesn’t understand what the threat is. And so they are looking to the right or two extreme parties.
The limits of financial expansion
Carl Schlyter:
So some people would love to print money, expand the economy because we need to do so much investment to solve different problems. I’m worried, however, that even if that’s financially possible, if we would reform the system, we have ecological limits. We can’t solve every single problem in our society with expanding production, expanding growth. What what’s your take on this?
Ann Pettifor:
So I mean, I completely agree with that. But I also disagree with those who say we can just print money. You know, what we have to understand about money is that it’s an obligation. If you say we just print money, then you’re saying there’s no obligation. We can just get a print machine and boom, churn stuff out. That’s not what it is, money is an obligation. If you don’t make it an obligation, if you make it something easy, you will get too much of it, right? If you say you can only have money if you promise to pay, and if you promise to spend this money on something sustainable, then you’re not going to create masses of money. But if you say, Oh, don’t worry we just can print the money, then you’ve not understood what money is in the first place. And secondly, you’re encouraging, exponential rises in the printing and the availability of money. And we can’t be like that, we can’t do that. You can’t have, you know, obligations are limited by the ecosystem and by the possibility of what you can do. If you say that an obligation can just be printed, you’re saying it’s very easy. I have to tell you, I have terrible arguments with some of my dearest friends about this. This is a debate that will carry on.
Carl Schlyter:
And I’m happy to hear you have the same arguments as me then. But, I think this is an important aspect also to understand that, yes, technically we can print as much money we want, but there are limits to this from both the side of ecology, but also on the kind of exactly promises to repay that you talk about.
Ann Pettifor:
The point is Carl we don’t even print money anymore. You know, I walk past today the homeless people in the high streets here in London. I can’t give them money because I don’t have printed money. It’s all digital. It’s ridiculous, in my view, to talk about printing money. I feel quite strongly about that.
Carl Schlyter:
But disconnection, I think is really important to see that we need to reduce emissions so rapidly, but not every solution to environmental problems can be to build something new, to replace something old with new infrastructure, new technology, because the system limits of this planet prevents us from this. So, even if it’s technically possible in the banking system, it’s not desirable from an environmental point of view.
Ann Pettifor:
I would argue it’s not even technically possible, but there you go. But you know we both met people who think it is.
Carl Schlyter:
But the early economists actually foresaw a more positive development. You’ve talked about Keynes here, these kind of positive progressive changes rather than the negative ones you were referring to now. You could foresee that he foresaw that his grandchildren will only work a few hours a day because all the technological development would actually, you know, reduce the need for heavy work and you would spend time doing things that you like and you yourself control over. And we can either go further back. Many neoliberals have probably read John Stuart Mill. He talks about that a stationary state of the growth of the economy is not the end of development that people could, you know, that we would have more time for culture, more time for leisure, more time for anything that makes life better. That’s the purpose of this text. So even 1848 John Stuart Mill, liberal economist, would foresee that constant growth is not going to give us what we need. How come we are still pursuing this growth logic too, at all costs?
Ann Pettifor:
I think it’s lack of understanding. I think it’s because the 1% are now so powerful in the global economy and they bamboozled us, really. But I am hugely optimistic that humanity has the capacity to rise above these things and rise against them and transform them. We’ve seen transformations happen in the past. You know, the Jubilee principle was about the periodic correction to imbalances. We have Sunday, every Sabbath we rest for a day in order to correct the imbalance in our own health system, in our own social and economic system. We have sabbaticals so that academics can periodically correct the imbalances in their life. I know that we’re quite capable of it and it will happen. I just wish it would happen sooner rather than later.
Carl Schlyter:
Well, let’s make it happen. I think that was a wonderful conclusion of this episode. Thanks a lot, Ann Pettifor.
Ann Pettifor:
Thank you. Thank you, Carl. It’s been a pleasure.
Ann Pettifor is an economist, writer, and activist. She is the Director of Policy Research in Macroeconomics (PRIME), a think-tank that focuses on developing alternative economic policies. Ann is the author of The Case for the Green New Deal and The Production of Money.