An exchange on Money for the People
First, I would like to thank everyone for their responses. I found them both helpful and challenging. It was particularly encouraging that the topic of money was seen as important, even if the perspectives varied. In my response, I want to focus on a few key themes.
Large-Scale Public versus Human-Scale Social
This dichotomy was picked up by a number of people. I agree with Gwen Hallsmith’s point that “public, private, global, local, large and small—all of these demand definition and rethinking.” This is as true of assumptions about the local and social as it is of the large and public. Is small always good? What will be the ownership patterns of local economies? Is the core assumption that they are market systems? The fact that British “building societies,” akin to credit unions but focused on home mortgages, are social banks did not save them from privatization or the German public banks from dabbling in securitization.
I think the pessimism about political parties, the state, and public structures generally plays into the hands of market fundamentalists. This is not to ignore the limits and failures of the public sector. What we need to do is socialize public money and ensure that social money has a public focus. Who will care for the elderly in the decentralized economies? Who will train the medics? I focus on public, national currencies because that is where we are now. It is the point from which the transition must begin. An alternative scenario would be to abandon national money systems in favor of a plethora of local monies, but I don’t think that would be wise. If we are to see local initiatives as parallel or complementary, then this must assume they are parallel to a continuing public currency. In that case, we need to have a perspective on how the public currency would operate both in the transition and in the future.
Although my essay focuses on money, my underlying proposition is about the nature of the economic system. The circulation of social money leaves open the fundamental nature of the economy. Is it a self-organizing market based on individualized choices, or is it a social/public provisioning system involving collective decision-making? If it is a market, then the social money is purely a medium of exchange. This fits well with the emergence of cryptocurrencies. Is it possible to have more socially responsive markets as several people suggest? Can the blockchain model or innovative commons-based systems such as crowd funding, peer-to-peer networking, or open-platform cooperatives provide a decentralized alternative to the private market? Do they still depend on individualized spontaneity, or can they produce coordinated provisioning systems?
The process that dares not speak its name in this neoliberal world is planning. The core assumption of my perspective is that there is a need for a democratically planned public economy that would be organized through the allocation of publicly created, debt-free money. This is not the same as wholesale nationalization of the economy. A major area of debate would be what is appropriate to be delivered though some version of the market (hopefully transformed by all the innovative ideas above) and what should be provisioned through the public sector. For me, the important potential of public money is that it allows for democratic planning in decisions about how money is to be allocated or spent.
I hope it proves possible to build from the ground up as many of the suggested approaches envisaged. I see my focus on democratizing and decentralizing from the top down as supportive of these initiatives not in competition with them. The British Labour Party has benefitted from a strong historical relationship with the consumer cooperative movement. The social economy also can (re)emerge when states and markets fail.
Some commenters proposed issuing new currencies or providing basic incomes, or even a combination. Alf Hornborg suggests that a basic income should be issued by the state in a currency that can only be circulated locally. He sees this as overcoming the problem of having public currencies as general purpose money that can be used in destructive ways. David Schweickart, by contrast, outlines his reservations about a basic income, and although supportive of a basic income, I share such concerns. The danger is that it dissipates without producing either an individual good or public good. What matters are the provisioning structures that exist, and these cannot be created by the mere distribution of money. I also worry how the coordination of the currency conversion process would work in a system of so many currencies. My approach is to keep the general purpose money and deal with destructive uses through regulatory and fiscal measures. As Hornborg himself argues, what is important is the value system that underpins the currency.
What and How
Several commenters emphasized the need to clarify the “what” and the “how.” The “what” for me is the public money system and the public economy—in short, funding public welfare and public provisioning (services and infrastructure). I don’t see this as the only focus for change and transition, or even a determining one. However, I think it is an important one and a major area of challenge to neoliberalism. Public welfare has been undermined by a shift to a blame culture rather than an entitlement culture (i.e., the widespread belief that people are in need through their own inadequacies). Neoliberalism promotes the view that welfare is unaffordable, public services are inefficient, and taxes are voluntary.
Although I imagine the respondents will have little sympathy with neoliberalism, some expressed reservations about public money, representative democracy, and large-scale structures generally. I think what matters is wellth—how can the goods and services people need for wellbeing and flourishing be provided. What structures will best serve the most needy/troubled members of society? What happens to those who are sick or have disabilities, those who are old with no family, those who are poor, or those off the net with no computer literacy? Until I am convinced that the techno-optimists of the blockchain and open-source era have a strategy for those “others,” I will defend the principle of a comprehensive welfare state. And funding that state is a key issue.
The “how” is twofold. The first is campaigning for social justice and the right to livelihood for all (including other species)—promoting sufficiency provisioning for all and reversing the emphasis on individualism and bootstraps (shared by conservatives and progressives in their different ways). This cannot be done on a purely ad hoc basis: policy and planning will be necessary. None of this is new, however, as there have been welfare campaigners for centuries.
The second “how” is overturning neoliberal ideology and neoclassical economics. I am often described as a monetary reformer, but I consider myself more a monetary rethinker. While there is certainly need for a new approach to monetary policy, I see this as being based on how money really works rather than prevailing economic myths. What I have tried to show in my books is that public money does exist, states do print money, money is not in short supply, public expenditure does not rest on taxation, the public sector is not funded by the private sector, banks do not link savers and borrowers, a debt-based money supply is not viable, public sector deficits (surplus expenditure) are usually a good thing—among many other points. Rethinking alone cannot achieve change—this will come from the exposed failures of current thinking and practice, if we are ready with an alternative analysis and framework for action.
The Interest Problem
The question of the relationship between debt, interest, and destructive economic growth provoked major disagreement. I asserted several times in the paper that there is a link between the three. I was referring to what seems to be a commonsense notion that if all the money supply is created as interest-bearing debt in total, then the banks must always want back more money than they create. People have to find the money to repay debt, and this encourages destructive forms of growth. Evidence and modelling seems to disprove both ideas. Clearly, debt-based money expansion can occur without triggering more resource damage—as in the example of the growth in finance. Peter Victor and Tim Jackson have shown that debt-based money creation does not trigger growth. I don’t think these reservations undermine my other two critiques of a debt-based money supply. It is socially unjust as only the “credit-worthy” (according to the banks) can access new money, creating “left behind” people and communities. And it is economically unsustainable because it is crisis-ridden. A credit crunch threatens the money supply requiring the state to step in, thus revealing the myths of market adequacy and state dependence. Moreover, I don’t think a capitalist steady state economy is possible for the reasons David Schweickart says: investor confidence and constant demand are key drivers.
How Should Money Be Created?
In the same way that banks create money when they lend, states create money when they spend. The idea that banks create money through loans is becoming generally accepted; that states create money when they spend has yet to be widely recognized. States do “print money” as they spend, but this only becomes obvious if public expenditure is not matched by a retrieval of that money through taxation (balancing the books). The fact that surplus expenditure (deficit) is recognized and allowed even by the neoliberal EU Maastricht Rules shows that money creation through public expenditure takes place. Public borrowing to cover any deficit is post hoc and is a monetary rather than a fiscal exercise.
It is therefore the democratic demand for public expenditure that will drive money creation. The level of tax retrieval will be a major determinant of the size of the private sector. Any public expenditure not retrieved will either be held as savings/investment or spent in the market sector. This would have repercussions for the balance of payments if there were no controls. As Schmaltz points out, Bernard Lietaer’s solution is to have a separate global currency, particularly as most current global monetary transactions are purely speculative. In my recent book, I make a similar suggestion.
Schmaltz also favors alternative forms of exchange to avoid the monetization of care and other altruistic activities. As with my earlier comments about alternative internal currencies, I am not sure if this will solve problems or prove a bureaucratic nightmare as different types of currency butt up against each other. My hunch is that it may be simpler to minimize the number of currencies but make their use more democratic. This would include making the rules and regulations under which the market operates a matter for public debate. This could include social, public, or commercial banks. Whether these operate on the basis of revolving loan funds or money creation would, again, be a matter for democratic debate. I think the difference between my approach and that of most monetary theorists is that they see the market as the predominant economic form whereas I see the public economy as more important (including within the present system). For example, modern monetary theory (MMT) sees public money creation as supportive of the market sector in its role as employer of last resort. I would see money creation as enabling social and public provisioning as employment of first resort.
As a forum for collectively understanding and shaping the global future, GTI welcomes diverse ideas. Thus, the opinions expressed in our publications do not necessarily reflect the views of GTI or the Tellus Institute.
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