A new Maltese lobbying group composed of economics students demanding a change to their university syllabus over its “outdated’ banking theories is being backed by leading economists
Rethinking Economics Malta is part of a global initiative, which recently penned an open letter to some 27 universities across 11 countries.
The letter currently holds 57 signatories, including from some leading economists and organisations.
Among those who have signed the letter, Steve Keens name appears who is most known for authoring the critically acclaimed Can We Avoid Another Financial Crisis? alongside organisations such as Positive Money a London-based non-profit campaigning for a reform of the current money and banking system.
Other signatories of significance listed are Prof. Richard Murphy from the University of London, Phil Armstrong from the University of Southampton Solent and York College, Carlo D’Ippoliti an Associate Professor of Economics at the Sapienza University of Rome and Andres Bernal from The New School in New York.
The call for action has since been taken up by students across the UK, Nigeria, Canada and Europe, including Malta – where students delivered their letter to the office of their Head of Department (Dr Philip Von Brockdorff). Every student taking part in the initiative is united behind a desire for a real-world education.
What does the letter address exactly?
The group claims that most economics departments teach an outdated theory that banks move money between lenders and borrowers, basically acting as the sole intermediary. But, as the open letter explains, the overwhelming consensus is that “banks are not intermediaries,” and instead claims that “commercial banks create the cast majority of money in circulation” by “inventing” money through credit.
“Not only does this reality contradict the taught theories in most textbooks, it also has enormous real world implications.”
The letter goes on to detail that “around 80% of new money created in countries like the US and UK currently goes towards existing property and financial markets, rather than a ‘real’ or productive economy”.
This is something the letter blames for the rise in housing prices which subsequently lead to housing crises.
The letter continues in saying that “in the Global South, 33 major global banks have poured $1.9 trillion into fossil fuels since the 2015 Paris Climate Agreement, directly influencing the trajectory of economies that will be hit first and hardest by climate change.”
The call is timely, and so is the letter, adding to the point that “in an overwhelming number of cases, economics textbooks and courses do not teach this to the economists of tomorrow”.
Mervyn King, former governor of Bank of England, said last month that we are “sleepwalking” into another world economic crisis.
“One of the causes of the 2008 Financial Crash was a failure to understand how banks create and destroy money, which led to a devastatingly faulty analysis of the economic situation, with far-reaching consequences.”
Nicole Meilak, from REM, is one of the students who handed their letter to Dr Von Brockdorff. She thinks that “banks are an incredibly important part of our economy – it doesn’t make sense to teach flawed banking theories, especially without ever delving into its critiques or acknowledging the existence of other theories.”
“We joined this campaign because students deserve an economics curriculum that depicts real-world practices.”
Rethinking Economics is an international network of students, academics and professionals building a better economics in society and the classroom. Through a mixture of campaigning, events and engaging projects, Rethinking Economics connects people globally to discuss and enact the change needed for the future of economics, and to propel the vital debate on what economics is today.