The stock of "broad money" (which is mostly not notes and coins, but the total of money that individuals and firms have in readily-accessible bank accounts) has been shrinking since late 2010, reports Martin Wolf in the Financial Times (16 June).
This seems paradoxical. The Bank of England has been lending to commercial banks at exceptionally low rates, and spending £325 billion in "quantitative easing" (which means, essentially, replacing banks' holdings of less "cash-like" financial assets by actual cash). That should increase the stock of "broad money" in circulation.
The problem is that other forces overwhelm that effect. Most money in a modern bourgeois economy is created not by the central bank, but by commercial banks' lending. If you put £1000 cash into your bank account, and the bank keeps a reserve of maybe £100 and then lends on the other £900 to someone else, who in turn puts the cash into an account at another bank, which in turn keeps a percentage reserve but lends the rest on... then the banking system "creates" money. At the end of that process, there is £10,000 in "broad money" created out of £1000 in cash.
It all depends on the banks lending. They don't lend so much because they feel they have to play safe and, as Wolf puts it, "those who are creditworthy do not wish to borrow; those who want to borrow are not creditworthy, at least in the current enfeebled state of the economy".
Bosses and the government often respond to workers' demands by asking: where will the money come from? We should ask them: where has the money gone? It has been swallowed up by the internal contradictions of an economy whose ebbs and flows are determined by the profit-drive of big banks and corporations.
