Could the money system be the basis of a sufficiency economy?

I recently discovered the really excellent Citizen’s Income Newsletter, which for example, in Issue 1, 2011, has very cogent reviews of important books that could inspire a commons- based, p2p-inspired, policy.

For example, the following 3 books:

* Hartley Dean, Understanding Human Need

* Bill Jordan, Why the Third Way Failed

* Harry Shutt, Beyond the Profits System

The issue also has an important closing editorial by Mary Mellor:

“In my book The Future of Money I argue that the money system could be a possible mechanism for achieving a socially just, democratically administered, sufficiency economy – an economy that can meet people’s material needs to the minimum necessary to enable a high quality of life for all. A major proviso is that even radical reform of the money system will not eliminate private profit-oriented ownership and control of economic resources, but it could provide a stepping stone to a more ecologically sustainable and socially just society. While money can be a source of greed, alienation and exploitation it is also a symbol of social trust between people. ‘Sound money’ is a product of society, not of market forces. When we say people trust in money they are trusting in the organisations, society and authorities that create and circulate it, other people, traders, the banks and the state. What has also become clear in the recent financial crisis, is that the only mechanism that stands behind the current money system is the state as representing the collective economic resilience of the population.

Classical economics tells us that money emerged spontaneously out of barter markets when a precious commodity (gold/silver) was adopted as a medium of exchange. This became embedded in coin and represented by paper. This has been discredited by the fact that banking and accounting emerged thousands of years before precious metal coinage and coin value rarely equated to precious metal content. The origin of money is much more social. Money in all its forms has been issued or administered by fiat, that is, issued and guaranteed by an authority, such as a powerful leader, an office-holder or a religious organisation. Historically, states or other monetary authorities have used their power to establish the circulation of money as accounting records or as physical tokens such as clay tablets, tally sticks or coin by ‘buying’ goods and services. Why should people give up their labour, goods or resources for a worthless accounting record, tablet, stick or coin? Because the ‘money’ must be returned as tax. Even people not directly subject to state ‘purchase’ are also required to pay taxes, so the money-tokens must circulate widely in the economy. Taxation must also not reclaim all the ‘money’ otherwise there would be no mechanism for general circulation. The state must therefore always be in deficit, an important lesson for today’s advocates of a balanced budget.

In modern economies, the state’s historic monetary role has been virtually obliterated. Money has been privatised through the issue of money through banks as debt, so much so that states have to borrow money themselves.

The modern banking system brings together private banking in relation to trade and the currency-creating powers of the state. Early commercial bankers issued their own credit notes, but as money issue and banks became more regulated, the money the banks issued was declared legal tender, that is universally recognised money authorised by the state. It is this combination of the public nature of money (national tender) and the privatisation of its issue and circulation that has created a money system based on private profit and public responsibility. As banks are issuing new money designated in the national currency, they are issuing what is, or should be, a national resource. Certainly they are issuing money that carries a public liability as is clear from the recent financial crisis. Even when money was deposited within another banking system (as in the case of the Icelandic banks), default became the responsibility of the British state. Equally, the Icelandic people, through the state, were forced to take on financial liabilities that were created by their private sector banks. If conventional economics and neoliberal ideology tells us that money is a private matter, the stampede of people towards a government guarantee of bank deposits in the event of default tells us otherwise.

Like states, banks issue money by fiat, out of fresh air. Although it is widely assumed that banks use savers’ deposits to make loans, albeit on an expanded fractional reserve basis, this does not explain where the savers got their money from in the first place. As with state money, bank money must be issued before it is saved. The first loan must come before the first deposit. Far from money representing prior market activities as the barter theorists claimed, it is the prior issuing of bank credit that is essential to bringing profit-seeking activities into being. Issuing money as debt also demands constant growth and expansion of the economy. Capitalism would collapse if everyone paid their debts, or if no further debts were taken out. Anyone who takes on debt is therefore creating new money. Those who take on debt are also making vital choices about the direction of the economy and, as the financial crisis reveals, those choices can rebound on society as a whole.

The money system is a national resource that should not be appropriated for private profit. This is important because the ability to issue money in a society creates the ability to define what is to be seen as valuable (in money terms). Letting the market harness the allocation of money has prevented the recognition of value created by the environment, non-market activities and public investment. Allocating money to citizens as of right or to public investment would give a completely different message about what is important in society. Instead of money circulating through the market to create ‘wealth’ which is then taxed (under much protest) for public use, public benefit would be the basis for the allocation of money. Administration via a public money system would avoid both the rigidity of a command and control economy and the speculative exploitation, waste and inequality of a capitalist market.

Security of money allocation for consumption and production would remove much of the need to undertake unnecessary work and enable people to be confident of a sufficiency of material goods with more emphasis on the quality of life. Overall priorities would also put public welfare first (hospitals, education, transport) which would make people feel more secure about their future. This would mean they did not have such a need to accumulate money savings. The problem with aiming to achieve future security in money terms is that there is no way people can know what their money will buy in the future. While sufficiency can be calculated in real terms (how much bread will I need?), there is no basis for sufficiency in money terms (what will bread cost in thirty years’ time?). Returning the money system to the public would be an invaluable step towards creating a socially just and ecologically sustainable sufficiency economy.”

More Information:

You can read an extended version of this paper including references at: www.paecon.net/PAEReview/issue54/Mellor54.pdf

Mary Mellor is Emeritus Professor at Northumbria University. Her most recent books are The Future of Money: From financial crisis to public resource (Pluto 2010) and The Politics of Money (Pluto 2002) (with Frances Hutchinson and Wendy Olsen)

I also strongly recommend watching/listening to this presentation by Charles Eisenstein on the right relationship between gifts and money:

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