[dalbasal]

100 year old events allows us, to some extent, to sidestep some of the deep feelings monetary discussions tend to evoke. These things recur. Tricks from the Napoleonic wars are reused during WWI. WWI lessons form the basis of WWII's monetary systems, which lead pretty directly to modern monetary systems and theories.

This event is not at all unrelated to the new deal, allied WWII monetary policies, lend lease, the marshall plan, Keynesianism, New Keynesianism (eg Friedman/monetarism) and into the present day.

the Bank(ers) ... purchased the securities in their own names with the bonds then held by the Bank of England on its balance sheet. To hide the fact.. bonds were classified as holdings of 'Other Securities' in the Bank of England's balance sheet rather than as holdings of Government Securities."

The BoE prints £350m of bonds. The BoE sells £100m to the public. BoE declares/lies that they successfully sold all £350m. The BoE buys the outstanding £250m of bonds itself using a virtual credit line backed by BoE bonds. Once the final transaction is completed, £250m of new money exists in government accounts and can be used to fund the war.

This is exactly how UK/US/Etc government deficits work today. Bonds are created. Some are sold. The rest is bought (or kept) by the Fed/BoE itself. The "deception" allows order to remain in the banking world while also allowing governments to fight the war/depression/deficit.

These days, the outright lies are not strictly necessary. Instead, we rely on complexity of ritual, bureaucracy and bond market transactions to "cover our tracks." One thing that has changed in society (if not in central banks and treasuries) is that "what gives money value" has become a non-question. I think that was different 100 years ago.

The researchers write: "The long-held laissez-faire principles of the Liberal and Conservative parties were thus sacrificed to raise the capital upon which the War's outcome depended."

This is a cliche. During the great irish famine 70 years prior, both the King and Prime Minister were involved in almost identical schemes. There are lots of examples.

To me, the odd part is that we can't play it straight and admit that governments invent money... or that it's OK that they do. Every policy that relates to banking, central banking, money printing or such requires some sort of lie. Just like now, FDIC bails out ostensibly uninsured accounts/banks. This seemingly has to come with an assurance that it's not what it looks like... even though it obviously is.

IE, it's not weird that money works like this. It is weird that we have to pretend like it doesn't.

[hgomersall]

Maintaining the illusion that the government operates like a household is all part of the economic theatre that underpins much of fiscal and monetary policy. The moment sufficient people realise that money can be created for whatever the government needs, people will start asking why then can it not be created to benefit society in general. It's getting increasingly untenable as people realise that there is always money available to bail out this or that bunch of wealthy influentials.

[dalbasal]

>> the illusion that the government operates like a household

That's one way of putting it, though kind of specific to current discourse. You might also say the "illusion" that a central bank is just a bank. You could say the the "illusion" is that banks are firms, providing financial services for profit like any other type of service.

In times past, the "illusion" was that banks are "fully backed and solvent." It's hard to pin down exactly what the "deception" is. Almost always, it involves surprisingly moralistic language.

Our generations' "bailout story" is that bailouts are necessary for stability. But... the problem with bailouts is "moral hazard," which in current language means specifically "externalized long-tail risk." These moral hazards are what (in the current story) cause bank failures in the first place. The business cycle has been reduced to a banking cycle, and it's now described as a cycle of moral failures.

In truly modern (postmodern?) fashion, these days everyone sees that there's a lie, but no one agrees on what the lie is.

[hgomersall]

I would suggest that the heart of the problem is substitution of value with money. It's the same mistake the mercantilists made, but particularly ridiculous with fiat currencies.