Lake Windermere shimmers with golden flecks reflecting the crisp blue sky, while the surrounding hills are bathed in a rich autumnal glow. It’s a perfect day for stomping about in a pair of mud-caked walking boots or basking in the late afternoon sun outside a tea room with a cup of tea and a scone.
So what are a psychotherapist, solicitor, IT executive and a biology lecturer doing shut up together in a bare-walled university meeting room?
They and thirty-odd others have come from all over the country to spend the weekend discussing monetary policy. And there is barely an economist in sight.
Positive outlook: Participants getting into rethinking monetary policy on a Sunday afternoon
Rob Moore, the IT executive, often does charitable work in his community. But he’d like to help create a society where there is no need for food banks.
Solicitor Jim Murray wants to tackle the inequality and housing shortage he sees on a daily basis in Liverpool.
Psychotherapist Joanne would like people to be free from stress-inducing jobs and biologist Tim Doheny Adams wants to see technology used to prevent environmental disaster.
The solution all of them have come up with: change the way money is created.
They want to take it out of the hands of the banks – and even create money to help in society where it is needed most.
Few of us give how money is created a second thought. We happily – or unhappily – earn it, owe it, trade with it, and dream of more of it.
But at the annual retreat of Positive Money, a not-for-profit organisation, attendees take a step back and question how it is made and whether or not this is working.
Positive Money argues, banks have a magic money tree, which it believes the government should control instead
At the moment, money is created by banks issuing loans to people – they don’t need to actually have the cash to make a loan. In effect, Positive Money argues, they have a magic money tree, which it believes the government should control instead.
Few of the attendees on this three-day retreat have come to Positive Money through an interest in finance itself.
Instead, most started by identifying issues for which – when they take a step back – they have a gnawing feeling the nature of money itself is the underlying culprit.
It’s an alluring notion – the idea that so many social injustices and issues could be fixed with one single, albeit hefty, tweak.
Raising questions: Participants have come from across the country to discuss money creation
An IT executive with a young daughter, Rob is a busy man. He works full time and helps out in his community. ‘Lots of my family work with people in the community, for example handing out food,’ he says.
‘I admire what they do, but I don’t want to do that if I could do something more systemic.
‘Rather than fixing the symptoms, what if we could change the root causes?’
He explains that he is on the retreat to find out if changing the way money is created is the answer. Fix that and you might not even need food banks, is the logic. Money could be created to help people pay off debts and improve living standards for the poorest.
Supporters: Attendees were picked from Positive Money’s 35 local groups around the country
Meanwhile, Jim Murray believes that changing money creation could help alleviate social problems from unaffordable house prices, to instability in the banking system, to inequality.
He believes that if money creation is no longer in the hands of the banks, it would finally mark the end of boom and bust, as the money creators would lose their incentive to create as much as they can thereby repeatedly creating unsustainable levels of debt.
Like many attendees he found Positive Money while looking for answers after the financial crisis.
‘The system is built for the ten per cent,’ he says. ‘We need to change things to stop the inequality of opportunity between the 90 per cent and the ten per cent – to democratise opportunities.’
Inequality, high levels of consumer debt, the environment and our mental health: could money creation be the underlying cause of so many of society’s issues? Or is it all just wishful thinking?
Walk and talk: Participants did find time for a walk – but money creation was still the main topic of conversation
Inspiration: Attendees enjoyed a few hours out of their campus lecture room
How money is created
To answer whether money creation is the problem, we really need to start by looking at how money is created at the moment.
As much as 97 per cent of the money circulating in the UK is created by banks issuing loans, according to the organisation.
Here’s how they do it.
Say, for example, you wanted to borrow to buy a house, or to invest in your business. You would go to your bank and ask them for the cash.
A common misconception is that the bank would then look at how much money it had in its coffers brought in from people’s savings and then decide whether or not to make you a loan from it. The amount it lent would be restricted by the amount of money it had in the pot.
But this is not the case. Banks do not need to match savings deposits with loans.
If it considers your request to be viable, the bank eventually just pops the money in your account – often done simply by making an entry on a computer system. And voila – money is created.
Positive Money’s argument is that this does not work.
Banks work in their own interests and those of its shareholders – the current system does not incentivise them to do what is best for individuals and society, it says.
Tackling the big issues: Conversations for Friday night included the state of the economy, politics, cryptocurrencies and the psychology of debt
And if you want proof of this, says Positive Money, just cast your mind back to the financial crisis in 2008 when we taxpayers had to bailout the banks to the tune of billions of pounds.
Creating money through increasing levels of debt is disastrous as well, it says – just look at the levels of consumer debt households are now burdened with.
After the financial crash, Positive Money called for money creation to be taken out of the hands of the banks, many of which had proven themselves ineffective stewards – and into the hands of the state.
It believes this single move would solve so many of the problems identified by its supporters.
For Jim, People’s QE would enable people to pay their debts. ‘It would inject money to Joe Public rather than the banks and financial markets and the top ten per cent’.
Tim, who teaches biology at York University, sees it as a solution to the environmental issues he cares about.
Back to basics: Positive Money’s Rachel Oliver gives a run through of how money is created
As evening falls on day one of the retreat and participants discuss cryptocurrencies, debt, and the state of the economy over pizza and homemade wine, Tim tells me: ‘I think it permeates everything.
For example, we know that the environmental damaged caused by someone who does not eat meat is a lot less than someone who does. But eating meat is good for the economy, although not in the long term.
‘Sovereign money [money created by the state rather than by private banks] would allow us to “invest in things that are not profitable”, such as green technology or campaigns, into things that benefit people directly as a whole.’
Coming up with a strategy: Participants shared their experiences from local groups around the country
Is it going to happen?
Even the charity admits, changing how money is created is a tall order.
Perhaps unsurprisingly, its strategy has evolved over recent years to incorporate several ‘stepping stones’ in the direction of its eventual goal.
Right now, it’s committed to the idea of ‘people’s quantitative easing’ as its next aim.
Conventional quantitative easing sees the Bank of England effectively print money to flood the financial system in the hope that it will feed into all areas of the economy and give it a shot in the arm when it’s looking sickly.
In the UK, it was done mainly by buying government bonds from financial institutions in the hope that a trickle down effect would see that money flow into riskier assets and ultimately through to the economy.
People’s QE is different because the money created is used in what Positive Money calls the ‘real economy’ – rather than bunging it into the financial system and hoping it reaches the people who need it eventually.
The money could be given out to households to help them pay off their often-insurmountable debts, or to invest in renewable energy, or other funds that have a direct, positive impact on society.
At the retreat, while many seemed determined that the ultimate goal could be reached, they feared the resistance of the banks, politicians and central banks against whom these moves would work.
Too good to be true, surely?
While its ideas strike a chord with a substantial and widening supporter base, Positive Money’s wishlist is sniffed at by many – and at the highest levels.
Theresa May revealed her view when, asked by a nurse in a pre-election debate why public sector workers could not have a pay rise she responded ‘there is no magic money tree’.
Positive Money has been arguing vehemently since then that there is one – or rather two – the banks and the central banks.
When governor of the Bank of England Mark Carney was asked last year about people’s QE – sometimes referred to as ‘helicopter money’ – he called it ‘flights of fancy’ and another time warned it would create a ‘compounded ponzi scheme’.
The magic money tree line has also been used to criticise the spending and People’s QE plans put forward by Labour leader Jeremy Corbyn and Shadow Chancellor John McDonnell.
Even some who are sympathetic to Positive Money’s ideas question whether putting money creation into the hands of a load of politicians or bureaucrats would really be any more effective than leaving it with the banks.
Will it happen?
Even the most fervent Positive Money supporters at this retreat had questions over any chance of success. Many spoke of the powers of the banks and the opposition that would inevitably be faced asking them to relinquish it.
But sentiment has been changing.
Not so long ago, had you mentioned helicopter money or People’s QE you would have been laughed out of most rooms.
The day after the retreat, at the Royal Society of Arts in London, Positive Money hosted a debate with Financial Times economics editor Martin Wolf and former shadow Chancellor Ed Balls.
Martin Wolf has for a long time been sympathetic to the views of Positive Money. And Ed Balls said: ‘If Martin thinks something is a good idea you should take it very seriously, and also you should always be open to radical ideas so therefore I genuinely have an open mind about whether in fact this is the right solution. I’m not sure, but I have an open mind.’
You should always be open to radical ideas so therefore I genuinely have an open mind about whether in fact this is the right solution
The Labour party has been considering people’s QE, and talks more freely than it has for some years about spending money despite levels of existing debt.
Positive Money certainly believes its ideas are gaining traction.
More than 966,000 people viewed its video explainer on the magic money tree – thanks to its supporter networks. Thirty five local groups meet every week to discuss ideas and strategise. Like the retreat attendees they come from all walks of life, most with little interest in finance itself.
Positive Money lead organiser Rachel Oliver says they believe ‘helicopter money will happen in the next five years’.
She adds: ‘Because we have so many people behind us it gives us access to the corridors of power.’
Sceptical: Prime Minister debate told a nurse in the pre-election debates that there ‘is no magic money tree’ – an idea that Positive Money contests
And in the meantime?
After three days of sharing ideas and coming up with plans for spreading the word, participants disperse again around the country and to share their experiences with their local Positive Money group – or set up a new one.
They won’t overhaul the way money is created overnight; some would question whether they might ever. But what feels powerful is these are not experts or economists taking on the economy. They’re doctors, students, retirees, lawyers, grandparents – members of the Conservative party, Labour party, Green party – and independent candidates.
The issues that are dealt with by economists are not esoteric or distant or academic, they’re about people, their jobs, their homes, their families and how we interact with each other. Whether you agree with them or not, Positive Money supporters are getting stuck in and stirring up the debate.
Beer, pizza and economic policy: Participants get in on an unusual Friday night
Shared experiences: Conversations often diverted into talk of cryptocurrencies, the nature of government bonds and quantitative easing
And while the retreat stirs up big ideas and ambitions, who knows whether the small, achievable changes will have just as much of an impact.
Janet Barlow is off home to North Wales after the retreat to dig out a bunch of paperwork.
‘I’ve been meaning to join a credit union for ages,’ she says. ‘And move my money into a better bank account. And maybe I’ll set up a direct debit to Positive Money too’.
Rethinking: Emily Maitlis chairs a panel with Positive Money executive director Fran Boait, Ed Balls and Martin Wolf
It will be interesting to see what would happen should we have another financial crisis.
Money is a manmade construction. So it doesn’t make sense that it doesn’t work for so many people
With questions still hanging over the response to the last and whether or not it has worked, perhaps ideas that still feel radical to many will become more palatable as other alternatives are sought.
As night descends on Ambleside, stillness descends on the lake while energy rises on campus room as ideas questions debates whirr around.
Rachel Oliver muses: ‘Money is a manmade construction. So it doesn’t make sense that it doesn’t work for so many people. Surely there is another way?’