It’s all a game of Monopoly really


It’s all a game of Monopoly really by Prue Plumridge

When Labour left office in 2010, Liam Byrne left a very unfortunate message saying there was no money left. The Tories have dined out on this lie ever since. We were compared to Greece and next in line to be affected by a sovereign debt crisis, and in 2010 Osborne claimed that the Tories had taken the country back from the brink of bankruptcy. The Tories have used the household budget narrative of deficit reduction, balanced books and surplus to justify the need for austerity when, in fact, it is not just the wrong recipe to return our economy to health but also a deliberate deception about how our state finances and economy actually work.

This deception has allowed the Tories to funnel more and more money into ever fewer hands and make the claim that we cannot afford public services or the NHS. The mantra of ‘there is no money’ has been used to justify the dismantlement of the safety net for when we are at our most vulnerable, and worse still the selling off of every aspect of our publicly provided services to the private sector. This government is making a political choice and people across the country are paying the price for it.

Most of us will identify with Dicken’s character Micawber in David Copperfield who wrote:

“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

So it is easy to understand how we buy into the idea that we have to pay our national debt down and balance our books. However, one cannot, in any way whatsoever, compare our own household budgets with the state money system.

And this is why:

A sovereign government:

  • Issues fiat money which is not backed by gold or anything else. (The gold standard ended in 1971 with the oil crisis)


  • Is not like a household. It doesn’t have to balance its budget (even though George Osborne says we do). In fact, reducing the deficit or going into surplus will remove money from the non-government/private sector.


  • Doesn’t tax first then spend later which means it doesn’t have to rely on raising taxes to spend. It doesn’t save its tax revenue – it destroys it.


To explain this strange concept think of a game of monopoly. You appoint a banker but he doesn’t collect taxes to get the game going because no-one has any money yet. The banker has to issue the money before it can collect anything back or the game can’t even begin. The issuing of the currency comes first. The bank can never go broke. If it runs out of money it can issue as much as is needed to keep the game going. So, you move about the board and you draw a card from the Community Chest or Chance – so you pay £50 – there goes a leakage. You play another hand and tax is due. The game will end very quickly if there isn’t a replacement for the money that is leaking out. Which is why every time you pass GO you collect £200. This keeps the game going. The banker always has to spend out more than he collects otherwise the game will quickly come to an end.  Which is to say that in this instance if the banker aka government is not deficit spending the game will end much sooner. (From Angry Birds by Dr Stephanie Kelton)

So to be clear taxes are not paying for anything not even your pensions!

However, they do have a function to:

control inflation or otherwise by raising or lowering taxes

redistribute wealth and income through progressive taxation

express public policy by subsidising or penalising certain industries or economic groups – for example railways for the first and polluting industries for the second.

To continue, a sovereign government:

  • Doesn’t spend money like we do – it isn’t the user of the currency. It is an issuer of the currency and creates money as it needs it.


  • Can’t ever run out of money and it definitely can’t go bankrupt. (Unless it is a European government and a member of the Eurozone. In that case a country becomes a user of the Euro and not the issuer. Then it is perfectly possible for it to go bankrupt as it is using what is, in effect, a foreign currency).


  • Can’t borrow its own money through selling bonds or treasuries to fund deficits and doesn’t’ ever have to worry about selling bonds to do so. When such bonds or treasuries are issued it is not about financing government spending it is a mechanism for controlling the interbank lending rate and the money supply. These treasuries/bonds are a bit like our bank accounts where we have a current account and a deposit/savings account where we park spare money we don’t need to get some interest. This is what the private sector does – pension funds for example – stash their money in a risk free place to earn some interest. Some call this corporate welfare and it is completely unnecessary. To follow the logic to its natural conclusion. If a government can issue the money it needs, it doesn’t have to borrow a bean from anyone at all. Indeed, why would it borrow money it had issued in the first place?
  • Can’t save up its own currency for a rainy day. Last year George Osborne announced that he would attempt to bind future governments to maintain a budget surplus when the economy is growing saying ‘we must act now to fix the roof while the sun is shining’. Budget surpluses do not represent ‘public saving’ which can be used to fund future public expenditure or a cache of money that can be spent later. A budget surplus only exists because private income or wealth is reduced so when there is a budget surplus private wealth is destroyed.


  • Can’t live beyond its means. Wait I hear you say won’t the magic money tree lead to inflation like it did in Germany or Zimbawe? Whilst it is the issuer of the currency that doesn’t mean that it can carry on spending ad infinitum as this would be inflationary. The only thing that will restrict government spending is access to resources. So, assuming there are idle physical resources including labour a government can continue to spend without concern for inflationary pressures.

Just before I go a word about that scary national debt. The online debt clock is designed to have us shaking in our boots at our financial recklessness! The national debt, however, is not like a mortgage or a car loan that has to be repaid. Paul Segal in an article describes it thus:

‘It is the money the government owes to us – not money we owe to anyone else. That’s right 80% of our government debt is owed to the British people. What is called the national debt is our own savings looked at from the other side of the balance sheet.’

Banks, businesses, people or countries may choose to invest their money in bonds as they earn some interest – they are in effect non-risk places to park money. This is our ‘National Debt’. To explain: you have a current account receiving no interest at all. So you put some of the money you don’t need into a deposit account like a Bond for example. The bank debits your current account and credits your new savings account. When it matures the bank debits your bond account and credits your current account with a little bit of interest to boot. You are always in the same financial position plus you get a little bit of interest. Nobody ever says that the bank is ‘in debt’ because you moved money from your current account to your savings account. So saying that the UK government is ‘in debt’ because people, institutions or corporations have exchanged their pounds for government bonds is just as misleading. Government bonds are basically £ equivalents and the government creates them both from thin air.

The “National Debt” is not by any measure a debt, but a measure of saved pounds.

And since that pile of saved £ never gets any smaller, you can consider those £ to be “retired.” Government bonds, in a net sense, don’t ever get cashed in and spent (although they could). They just sit there, unused, and once in a while a small bit of interest is added to the pile. And that pile has no discernable effect on the economy.

So there you have it – we are not in debt up to our ears – George Osborne and the media just want you to think we are.

Finally, on the subject of the burden of debt on future generations. Only today, the Chancellor shamelessly used yet another scare tactic in response to his plans for more public spending cuts by saying “We need to act today now so we don’t pay later”.

To quote the economist Professor Bill Mitchell:

“The fact is that a government has as much ‘money’ now as it had yesterday and the same amount it will have tomorrow. That is, it has whatever it wants to spend. It has no more or less capacity to spend today because there were surpluses in the past than it would have if there have been deficits in the past. The idea that fiscal surpluses (as indicated above) provide more spending capacity in the future or lower tax rates is just plain false. Every generation will choose its own tax rates. That is, a mix of public and private sector involvement in the economy is a political choice. Currency issuing governments do not draw down on the savings provided by previous government’s surpluses. It is a nonsensical notion to think that a sovereign government would ‘save’ in its own currency.”

However, this is not to say that we shouldn’t be concerned about the direction in which the country is travelling in. Reducing the deficit and aiming for surplus simply removes money from the private sector which means that people have to take on debt. There has, over the last few decades, been a huge increase in private debt and the trade deficit (that is the difference between our exports and imports) is at worrying levels. But that’s another story.


Links and credits:


Note: These articles whilst written for largely for a US and Australian audience you just need to replace $ for £. It’s all the same!


Austerity is a Political Choice not Economic Necessity


By Prue Plumridge

Last week Matthew Lyn (a columnist for Bloomberg) wrote in an article published in Money Week that, “the policies on offer under Corbynomics would quickly ruin the economy”. This was followed shortly afterwards with another written by no less than a Labour councillor and published on Labour List which assured us that Cutting the deficit, healthy public finances, running a budget surplus, fiscal responsibility, and prudence [..] are not Tory ideological dictums but sound economic strategies that had served Labour well in the past. Embracing these goals and persuading Britain that we can be trusted on economy is a key to winning power.”

However, if were to take the trouble to understand how our economic and money systems actually work we would soon learn that such statements are either born of economic illiteracy or wilful deceit in order to pursue specific political agendas. This can largely be attributed to the decades of ‘conditioning’ which has done its job and led to the belief amongst the general population that there is no alternative to austerity, that we have to live within our means, and pay back our debts in the best Micawber tradition. You would think listening to politicians, many mainstream economists and the media that there is only one economic model in town – the household budget one.

Jeremy Corbyn has set out a clear and achievable plan for the future, and yet, Lyn believes that his proposals are a recipe for disaster. In fact he calls it delusional and complains bitterly that the success of the Greens and the SNP is based on a crazy idea that we can wave away our economic problems by recklessly printing money, getting into more debt and increasing state intervention.  Matthew then exposes his ignorance on economic matters by confusing deficit with debt when he writes “by any historical standards the UK is running a huge budget deficit”. The reality is that whilst George Osborne has reduced the deficit he has also increased the debt significantly* so by any standards, if you accept the household model of state budget accounting and that the debt is debt in traditionally accepted terms, the Chancellor hasn’t been doing that well given that he promised to balance the books by 2015.  To  he is now promising a £23bn surplus by 2020 that he says will not only eliminate the deficit, allow us to pay back some of our debt but also reduce our taxes.

*2015         £1.36 trillion (forecast)

2014          £1.26 trillion

2013          £1.10 trillion

2012          £1.10 trillion

2011          £0.91 trillion

2010          £0.76 trillion

2009          £0.62 trillion

2008          £0.53 trillion

Most people readily understand the word budget in terms of their own income believing, quite rightly, that they go into the red when their spending exceeds their income and that saving is spending less than they earn. It is easy to be fooled into thinking that our economy and money system works in the same fashion.  The on-line UK national debt clock which is ticking at a mind-boggling speed is a good example of how we have been conditioned to believe that we have been profligate and it is time to get control of our expenditure, balance our books and pay down our debt. Our understanding is, in fact, back to front. Deficits in state terms represent our savings i.e money that is issued by a sovereign government and spent into the economy to increase the financial assets available to the private sector i.e. to make the economy go round. On the other hand, achieving a surplus, as economically ignorant politicians are promising with some pride, will simply have the opposite effect by removing those said assets from circulation and putting the private sector into deficit.   One man’s surplus is another man’s deficit as it were. And, furthermore, the idea that a government can ‘save’ money is simply wrong as Professor Bill Mitchell, the respected Australian economist explains:

“People get very confused about the concept of national saving. They assume that saving is spending less than you earn and then apply that to budget surpluses and conclude that the surpluses add to national saving. But this view is erroneous. A sovereign government does not save. What sense does it make to say that the government is saving in the currency that it issues? Households save to increase their capacity to spend in the future. How can this apply to the issuer of the currency who can spend at any time it chooses?”

The subject of the national debt is also one where there is public misunderstanding.  Television is awash with programmes which picture debt collectors carting away the assets of someone who has got into arrears with a loan or following the lives of people whose financial situations are so dire that they are forced into bankruptcy.  Most of us quite erroneously, think this applies to the State too.  Who wouldn’t when prominent politicians say things like ‘We have taken our country back from the brink of bankruptcy’ (George Osborne October 2010). We were told then that if the country didn’t rein in its expenditure the debt collectors would be knocking on the door of the Treasury demanding payment or threatening bankruptcy if it didn’t pay up.  A simplistic picture yes but one which would chime with many people’s personal experience these days.  Worse still, we were compared to Greece and next in line to be affected by a sovereign debt crisis. Both lies and about as far away from the truth as it could get.

Here is how Paul Segal described the reality in an article published in the Guardian in 2010:

“Cameron argues that within five years the national debt will rise to “some £22,000 for every man, woman and child in the country”. This may be true, but what he doesn’t tell us is that it is money the government owes to us – not money that we owe to anyone else. That’s right: 80% of our government debt is owed to the British people. What is called “national debt” is our own savings, looked at from the other side of the balance sheet.”

It seems extraordinary that the economic model advocated by mainstream, neoliberal economists is one that is promoted as if there had never been another and also denies the accounting realities which are the basis for how the economy and money system actually works. It’s as if Wynne Godley, Hyman Minsky, Abba Lerner, Michal Kalecki, and of course Keynes and Marx to mention a few, never existed.

So if the money system doesn’t work as we’ve been led to believe by deceitful or economically illiterate politicians and media hacks, how DOES it actually work? Quite simply:

“A sovereign, currency-issuing government is NOTHING like a currency-using household or firm. The sovereign government cannot become insolvent in its own currency; it can always make all payments as they come due in its own currency because it is the ISSUER of the currency, not simply the USER (as a household or private business is). This issuing capacity means that the government does not face the same kinds of constraints as a private sector user of money, which in turn exposes the fallacy of the household analogy, so beloved in popular economics discourse.

Indeed, if government spends currency into existence, it clearly does not need tax revenue before it can spend. Further, if taxpayers pay their taxes using currency, then government must first spend before taxes can be paid. Again, all of this was obvious two hundred years ago when kings literally stamped coins in order to spend, and then received their own coins in tax payment.

Another shocking truth is that a sovereign government does not need to “borrow” its own currency in order to spend. Indeed, it cannot borrow currency that it has not already spent!”

It is astonishing to learn that whilst most of us think that government has to raise money from the capital markets to finance the deficit and refinance maturing debt this is not how it works at all.  It is simply a convenient smokescreen behind which neoliberal politicians (Conservative and Labour alike) hide in their justification for pursuing austerity and public sector cuts. In fact, as Professor Mitchell points out “the continued issuance of public debt is a form of corporate welfare which makes the task of making profits through trading financial assets in private capital markets that much easier…… the Treasury [issues] securities not because it needs cash, but because market participants need securities.” 

The truth of the matter is that in 1971 when the Bretton Woods system collapsed (which tied currency to a gold standard) and fiat currencies were introduced governments were freed from those revenue constraints.  We have been led to believe that raising cash from the market is to fund government spending when tax revenue is insufficient.  But in a fiat monetary system even tax revenue is unnecessary.  The constraints on government spending are not financial but those linked to productivity and available resources and this is what puts the brakes on government spending not being in debt.

So how can we make sense of the motivation of our politicians to justify austerity and cuts on the back of what is not only plainly untrue but has also proved so destructive during the last five years? Jeremy Seabrook wrote in the Guardian in 2010.

Today’s detestation of “big government” stems from this same source, and the affection of Cameron and his colleagues for the “big society” is a euphemism for the reduction of public funds in assisting the poor: rolling back the state, leaving the market to distribute its rewards in accordance with the natural order of things … the market mechanism is as flawless a creation as the earth, and should remain untouched by the hand of meddlers, whose only effect is to upset its power to enrich us all … Once more, the state shrinkers, the advocates of vanishing government, the cutters of red tape and regulation, the liberators of a humanity constricted by statist straitjackets, believe they have a mandate for freedom. But it is freedom under the law of an imagined jungle; by a savage irony, at a time when the smoke from the stumps of felled trees in the real jungle darken the horizon of a used-up future.”

We are not as neoliberal politicians want us to believe  ‘living beyond our means’ and the austerity drive which manifests itself as the necessity for draconian cuts in the public sector and the privatisation of publically funded services is really about reducing the size of government and restoring the ‘primacy of the market” as Professor Mitchell has remarked.

Deficits and debt are, in truth, the biggest red herrings of all in this debate.  In fact as Lord Macaulay wrote in ‘The History of England’ published in 1849:

‘At every stage in the growth of that (national) debt it has been seriously asserted by wise men that bankruptcy and ruin were at hand. Yet still the debt kept on growing; and still bankruptcy and ruin were as remote as ever’

The real issue is how we plan for the future.  How productive can we be, will there be sufficient resources at our disposal to meet demand? These questions have to be debated in the context of climate change and the devastation which we are seeing all around us, both human and in nature, whose roots lie in the capitalist desire for untrammelled growth and the search for profit.  Equally we are not the ‘machine men’ of Charlie Chaplin’s speech in The Dictator and as such we need to give those that want it and are able the dignity of employment which meets their financial and physical needs.

It is time to reassess the capitalist pursuit of profit through the downward spiral of a low paid economy and the maintenance of unemployment as a neoliberal necessity. It is time to challenge the neoliberal agenda which successive governments have embraced over decades. Such blind adherence or maybe not so blind has led to increasing inequality, a wealth gap of extraordinary proportions, an unstoppable drive for unsustainable growth and a situation where corporate power is replacing the democratic framework as it subverts democracy through politicians and trade deals.

So what sort of society do we want to live in and how might we achieve it? The entry of Jeremy Corbyn into the leadership race has revitalised that political debate in a very public way.  Do we want to continue with a political framework where there is not much to tell between the parties and a status quo future or do we strike out for a completely new paradigm? That debate must be held in terms of an economic model that will best deliver our aims.  Professor Bill Mitchell has set out some broad principles which could serve as the basis for that discussion.


1. The Government is Us!

2. The government is our agent and like all agents we cede resources and discretion to it because we trust that it can create benefits for all of us that each one of us individually cannot achieve. We understand scale.

3.  Governments invest in our immediate well-being by providing essential services without the need for profit.

4.  Governments invest in the next generation’s well-being through building productive infrastructure that delivers services for decades.

5.  We empower governments with unique characteristics so that it can pursue our interests without the constraints we face ourselves.

6.  We understand that a deficit for us means we have to find funds to cover it, whereas a deficit for our agent, the currency-issuing government means it is funding our spending and saving choices.

7.  A government deficit enhances our freedom because it boosts our income and allows us more options.

What next?  The choice is most definitely ours.



How to discuss Modern Monetary Theory: Bill Mitchell.

Deficits are our savings: Bill Mitchell

Budget Surpluses are not savings: Bill Mitchell

The National Debt is money the government owes us Paul Segal

Market participants need public debt: Bill Mitchell

Jeremy Seabrook: The specter of laissez faire haunts Britain.

The Debt Delusion: Exposing Ten Tory Myths about Debts, Deficits and Spending Cuts: Mehdi Hasan.