Money as a Commons

Professor Mary Mellor

Northumbria University UK

Helsinki University 16.05.13

Modern Money is not a Commons

• Modern money has been privatised

• The main source of money issue is through the banking system

• This money is only issued as debt through bank accounts

• However people think of this as ‘real’ i.e. public money (national currency)

Money Creation: Currency - Bank

QQ QE

Privatised Money Supply

• Most money is now issued as debt (97% in UK)

• States have lost control of money supply

• Enhanced by use of electronic money

• Enabled the growth of a ‘money market’ where both money (currencies) and debt (securitisation) are traded as commodities using debt funding (leverage)

BANK LENDING INCREASES

MONEY SUPPLY

Expansion of UK Money Supply

0

500

1000

1500

2000

2500

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

GDP index

Broad money (M4)

CREDIT CRUNCH DECREASES

MONEY SUPPLY

Bank money creation

• ‘the process by which banks create money is so simple that the mind is repelled’ (John

Kenneth Galbraith, 1975 Money: Whence it came and Where it went Penguin, London p. 29)

• ‘The essence of the contemporary monetary system is the creation of money, out of nothing, by private banks’ often foolish lending’ (Martin Wolf Financial Times 9.11.10)

Privatised Money

• Economic policy controlled by profit-driven private interests

• Financial sector controls money supply

• Instability of money supply (boom and crunch)

• State reliant on taxing private sector

• State has to rescue financial sector using ‘borrowed’ money

• State is then ‘punished’ through austerity

Marshall Plan

Louisiana Purchase

Moon race

S&L crisis

Korean War

New Deal

Iraq War

Vietnam War

NASA

World War II

Banking bailout

• Jim Bianco, of Bianco Research: http://www.ritholtz.com/blog/2008/11/big-bailouts-bigger-bucks/

Neoliberal Ideology – Handbag Economics

• All money and wealth is created in the private sector

• States must limit expenditure to avoid overtaxing the private sector

• States must not create their own money

• State as household dependent on borrowing from the ‘money market’ (Maastricht Rules 3% deficit 60% National Debt)

MONEY SYSTEM €€€€€€

What is Money?

• Where does it come from?

• Who owns and controls it?

• How is it issued and circulated?

• It doesn’t just appear in society –floating from the trees……

Economic Myths

• Money emerged through trade

• Money is only a medium of exchange

• Money originally had intrinsic value (gold/silver)

• Banks loans link savers to borrowers

• States cannot create money or wealth

THE ECONOMIST’S STORY

BARTER

1750 BCE Code of Hummurabi

600BCE

1300 AD Modern banking

MONEY CAN LOOK LIKE THIS

With permission: tab2space on flickr

MONEY CAN LOOK LIKE THIS

With permission joep de graaff flickr

Varieties of Money

• Money can take many forms: clay tablets, written records, sticks, stones, coins, paper

• Social : used for injury payments, tithes, dowries, local exchange

• Public: issued and used by rulers, states or monetary authorities

• Commercial: issued as debt by banks designated in national currency

PUBLIC MONEY IS DEBT FREE EXPENDITURE - TAX

BANK MONEY IS DEBT LOAN - REPAYMENT + INTEREST

The Problem with Debt Money

• More money is reclaimed than is issued

• Ponzi system – old debt is paid by new debt

• Drives constant growth and profit-seeking

• Crisis if unregulated (2007-8, Finland 1990’s)

• Private benefit - public responsibility

• Ignores the need for deficit/debt free money in money systems

The Necessity of Deficit

• Deficit: The allocation, spending or lending of more money than is reclaimed (taxation rates never 100% - banks demand 100%+)

• Handbag economics’ deficit hysteria is totally mistaken. More money must always be issued than is reclaimed – otherwise there will be no debt free money to circulate

• Bank deficit occurs as default on loans

Money systems need deficits not debts

• ‘I cannot find an example of a country that has come through a banking crisis and returned to economic growth without the creation of a state development bank… the whole point of a state development bank is that it loses money’ (a senior investment banker quoted in Sunday Times 05.08.12)

The Money Divide

Economic ‘Man’

Market value

Personal wealth

Able-bodied workers

Labour, intellect

Exploitable resources

Knowledge (IPR)

Women’s work

Subsistence

Social reciprocity

Sick, needy, old, young

Body

Ecosystems, wild nature

Feelings, emotions, wisdom

What to Do?

• Get rid of money – not very practical in urbanised societies, also money in various forms has a long history

• Spread current money access (debt) – problems of micro-finance/sub-prime

• Create Local Money – useful - but does not usually cover wider economic needs

Money as a Commons

• Money should be seen as a ‘commons’ social resource like air or water is a natural resource

• Its issue should not be privatised or its accumulation be a primary aim

• Currently no basis for ‘enough’ : bread/money price

• Money as a public resource would create the possibility of a sufficiency economy with enough for all not cornucopia for some

Money as a Commons

• Money access as democratic right (citizen income, right to meaningful work)

• Use of socially issued money to prioritise economic activities (social need, public services)

• Any residual market system would be regulated and serve the demands of a sufficiency and socially just economy

Debtfree Money for the People

Democratising Money

• Control of money supply needs to be taken back from the banks

• All new money should be issued free of debt on the basis of democratic priorities

• Monetary management through issue and taxation (linking fiscal and monetary strategy)

• Private investment should be based on a real transfer of money (as the text books say)

People’s Money for Sufficiency

• Democratic priorities

• Needs-led expenditure

• Public infrastructure

• Community/Specialist banks

• Not for profit services/production

• Basic income

• Income for ‘commons’ resources – land, water

Publications

• Mary Mellor (2010) The Future of Money: From financial crisis to public resource (Pluto)

• Mary Mellor (2010) Could the money system be the basis of a sufficiency economy? real- world economic review 54 www.paecon-net/PAEReview/issue54/Mellor54.pdf

• Frances Hutchinson, Mary Mellor, Wendy Olsen (2002) The Politics of Money (Pluto)

Web Lectures

• Bringing Economic Down To Earth http://www.youtube.com/watch?v=9F-DuD6T_i0

• Just Banking http://www.youtube.com/watch?v=uAhxDsm0eZE

Understanding Money: four lectures

• http://www.youtube.com/watch?v=5IZRWQn5jgk

• http://www.youtube.com/watch?v=8wpbnYZZaG4

• http://www.youtube.com/watch?v=PoIRCHq7Cr4

• http://www.youtube.com/watch?v=argEb1tWtt0