CANVASSING for Jeremy Corbyn in 2017 a constant question was “Where’s the money coming from?”

One answer could be British money — sterling — a “hard” currency, “hard” because it can be used for trade across the globe, between every country with other “tough guy” currencies. Top of the list for total world foreign exchange reserves is the US dollar, with 57 per cent, the euro at 20 per cent, Japanese yen 5.81 per cent is no 3, sterling is no 4 with £588 billion 5.81 per cent. While movements in the value of hard currencies occur constantly, over time, they are mainly stable. 

But money can itself fall victim to crises. In the US between 1980 and 1994 such crises were caused by excess land and house loans, speculation and poor underwriting. Well over 2,000 US banks bailed out or folded. Key to survival was the strength of the dollar and piles of “new greenbacks” with, crucially, political support from the US state.

And then 2007-12 saw the biggest financial crisis of recent times. According to the US Federal Deposit Insurance Corporation, the intensity of bank problems, combined with the threat this crisis posed to the US economic system, meant “the worst economic crisis since the Great Depression.” Some 484 banks failed, including Bank of America, Citibank, Washington Mutual and Lehman Bros. 

To address liquidity and bank capital problems from August 2007 to December 2009 Federal Reserve agencies combined to keep a daily average support for US finance of $221bn, with over 30,000 loans for bank support of nearly $15 trillion. Some 700 banks of all sorts received aid under the 2008 Troubled Asset Relief Programme. 

In Britain the crisis was just as severe but the state, and its bank, were equally willing to help out. Technically the banks were owed, through their deposits in the state bank, billions for government bonds and loans lying in bank books unpaid (these were the reserves that sustained them as banks). The Bank of England took them and paid face value to the banks. As with the US dollar, the pounds paid to the banks were “created” by a button on the Bank of England computer. So, although some banks failed, as in the US, for most banks the “gaps” on the balance sheets were automatically filled by accounting procedures, balance sheets balanced and panic subsided. 

That’s how the magic money tree has been used by the capitalist state to deal with problems that the capitalist state’s own magic money tree itself created. And asking how much money could be made available would depend on whether you are the dominant global capitalist power. The US can print large amounts; Britain much less. 

The key question — at least for Marxists — is different. It is the relationship between this money and the economy’s real productive assets, the exchange value of the commodities produced in terms of socially necessary labour time and, not least, class power.

For most of the banks in the US, Britain and the EU the “solution” in 2009 worked fine. But the real cost of the “press-a-button” money had to be paid for over the following decade at the expense of benefits, public-sector investment, employment and wages. In fact, because of the severity of the banking crisis that decade will probably be seen as marking a turning point in modern capitalism towards stagnation, minimal investment and low growth.

But can the reverse happen and magic money be used on behalf of working people ? 

In the US modern monetary (MMT) theorists, such as Randall Wray, say Yes. They have expanded on Keynesian ideas, rejecting key parts of neoliberal theory and pointing to the power of the state to create money. With underused land, economic resources and labour, the creation of “new” money for capitalist investment could, it is argued, boost the economy. And in the US, yes, it might just as long as the dollar remains the dominant world currency. But, for Britain, we need to remember the unfortunate Liz Truss or the current problems of Rachel Reeves. 

During the devastation of the last war somewhat similar debates occurred in Britain during the preparations for post-war reconstruction and fulfilling the wartime promises of full employment. Keynes said, yes, print money as long as it goes into new production and the output soaks up the extra cash. Beveridge argued the government should tax during booms and pump it back during recessions. 

Marxists like Maurice Dobb were not convinced. Apart from being a convenient evasion of the strong demand post-war for full socialism, it neglected the monopolised nature of the British economy. Monopolies like inflation. They just jack up their prices at the expense of workers and smaller firms. And eventually printing money would run out of control — as it did in the 1970s.

Maybe if it were combined with working-class mobilisation, the exertion of that class power to buy out the monopolies and then to fund publicly owned productive investment, the outcome might be different. But that’s not what MMT says.  

Questions mount up in terms of who gains from MMT. Will workers’ pensions benefit — or be hit by inflation? Will the increase in work be sustained? Will poorer areas gain? 

Creating more sterling or dollars for public-sector projects requires relevant regulation with strong political and trade union oversight. Corbyn’s call for the nationalisation of water, gas, rails, electricity, the rebuilding of schools and decent pay for public-sector workers was not impossible. But printing bank notes, as Corbyn himself knew, would not have been enough. 

We’ll look further at the fable of the “no magic money tree” argument and the limitations of modern monetary theory, its converse, when we’ll consider in a future Q&A what a socialist monetary policy might consist of.

The Marx Memorial Library and Workers School’s next online economics course Capitalism, Crisis and Imperialism starts on Tuesday May 13 2025. Details on www.marx-memorial-library.org.uk, from which you can also view and download past ‘Full Marx’ Q&A — this is number 121.