Pre School Lessons For The Bankers | By Ashbourne Independent Sixth Form College, London
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Pre School Lessons For The Bankers

Home » College Articles » Pre School Lessons For The Bankers
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Pauline Skypala has written an excellent article about a proposal that bankers get involved with financial education at schools. Interestingly, she focuses on the need to educate people about the nature of money – specifically addressing the question, “What is money.” She then goes on to say that most people in the UK mistakenly believe that the government is responsible for the creation of money and that few understand the idea of credit creation. This is excellent stuff.

My own experience might prove useful. I have a first degree in Engineering and a Masters degree in Statistics and have spent the best part of my working life teaching Maths and Physics and managing a private college for A levels. About 5 years prior to the credit crunch I became curious about the origin of money and certainly struggled with the idea of Renaissance banks creating notes based on their clients’ deposits of gold. (Yes, what happens when everybody wants their money/gold back?) Frankly I still find it startling that the function of creating money, although closely supervised, is left in private hands.

Next to startle is the multiplier effect where, depending on reserve ratios, lending £1000 can cascade and percolate through a buoyant economy to make eventually £10,000 new money in total. Because I understand geometrical progressions, it is quite straightforward for me to justify this effect, but, if you were to ask me why the multiplier does not lead to infinite currency, I would need to think carefully before answering.

Pauline suggests that the teaching of economics should be predicated on an understanding of money and I agree, although I would hope that the issue of collateral as well. She may be dismayed to know that at A level there has been no element of the syllabus involving money or banks for at least 15 years. I don’t know why this is because to me it is one of the crucial and most interesting aspects of our economy. Nevertheless, if I struggled, presumably the chief examiners might believe that other students would also, and simply leave the topic for those who pursue such understanding at a higher level. None the less, it may be a warning to any idealistic banker before they begin their educational missionary work.

Finally, a wit has said: “Lending money to a banker is like giving a gallon of beer to a drunk: you know what will ensue just not which wall they will choose.” In any event, any banker who makes a pilgrimage to the classroom should at least be prepared for the first question students are likely to ask: “How much money do you make and why?”

 

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