Perhaps the leading champion for reforming the current money system is Mary Mellor, emeritus professor at Northumbria University in the UK and author of the recently published, eye-opening book Debt or Democracy:  Public Money for Sustainability and Social Justice (Pluto Press, 2015, distributed in the US by University of Chicago Press Books).

Mellor recently published an oped piece in The Independent, the British newspaper, that summarizes some of the key themes in her book. Her essay focuses on the “myth of handbag economics” – the idea that government budgets are comparable to household budgets.  This distorts our understanding of how the money supply works, says Mellor, and inexorably leads governments to adopt fiscal austerity policies.

The critical political question that is rarely asked, said Mellor at a policy workshop last September, is: Who controls the creation and circulation of money?

She notes that the government, as the sovereign, has the authority to issue new money – an ancient authority known as seignorage.  But in practice, governments have surrendered this authority to the commercial banking sector, whose lending creates nearly all of the money in circulation as debt.

Banks create money out of thin air by issuing new loans.  They need not have those specific sums of money on hand, in a vault. They need have only a small fraction of reserves of the total sum lent, as required by “reserve banking” standards. In this way, bank lending quite literally introduces new supplies of money into the economy based on strictly private, commercial standards – i.e., banks’ assessments of borrowers’ ability to repay the debt with interest.

Mellor believes that we need to recover the power of public currency to meet public needs.   By “public currency,” she means “the generally recognized and authorized public currency created through a public money circuit that originates in central banks and government spending.”  Privately created currency is money designated as public currency that is issued through the banking sector as loans.  It is the fact that bankers are creating the public currency when they make loans that makes the state liable to honor that money when banks go into crisis.

Mellor calls this simple-minded and self-serving understanding of money “handbag economics,” an allusion to the prominent handbag that Great Britain’s neoliberal Prime Minister Margaret Thatcher always carried around.  “According to handbag economics,” said Mellor, “there is no such thing as public money, nor can public money be created except through private banks.”

To underscore the folly of governments creating money, bankers reflexively cite the ruinous inflation that results when the German Weimar Republic “just printed money.” The assumption is that governments cannot legitimately issue money or create wealth; that can be done only through bank-issued credit, or lending – or so goes the story.  Therefore, any public spending that occurs without first collecting the money through taxation is deplored as reckless “deficit spending.”  Mellor argues that in practice governments are always spending in advance of taxation. States spend first and tax later. If they taxed first, deficits would never arise.

The standard narrative about banking and money also conveniently ignores the fact that governments routinely supply “basic money” to private banks to keep them afloat, said Mellor. We saw this quite dramatically in the months and years following the 2008 financial crisis.  The US Government created hundreds of billions of dollars out of thin air – as “public money” – to bail out the banks and prevent them (and the global economy) from collapsing.

It is always the public capacity to create public currency free of debt that stands behind the private banking system.  This is demonstrated again and again as debt bubbles burst and bank runs threaten to ruin the economy.  The state always needs to intervene as the lender of last resort.  “All formal money systems are essentially public, resting on public trust and public authority,” said Mellor.

This raises an interest point for Mellor:  Why should the commercial banking sector be allowed to be parasitic on the public sector?  Why do we, as citizens and taxpayers, allow the private finance system to control the public sector?  Mellor argues that the obvious answer to taxpayer bailouts and subsidies to private banks is to “harness the democratic right to create money” and use it to serve public purposes.

This is such a heretical thought that many people gasp, spit out their coffee, and exclaim that this is nuts.  (Just look at the comments in response to Mellor’s piece in The Independent.)  But Mellor argued at the workshop mentioned above:

The power to create money has shifted from sovereigns to the commercial sector, from the ruling class to the merchant class.  What is needed is to transfer this power to the public.  The central bank must return the sovereign prerogative of money-creation free of debt to the people, for the benefit of the people, as a public resource.  That is, money must be democratized.  This is particularly the case if we wish to create socially just and ecologically sustainable provisioning systems – a much better concept than “the economy.”

Moving toward this new orientation of “democratized money” requires that we change our understanding of what it means for government to create money.  It does not consist of “deficit spending” as presently understood – i.e., money that must be repaid to banks.  After all, government creation of money is a sovereign prerogative for meeting public purposes.  That why precisely what the “quantitative easing” used by central banks to save troubled commercial banks was all about.  It was the issuance of a public currency nominally intended to serve a public purpose (preventing economic collapse) but in effect a private business subsidy.

Funny, we didn’t hear too many bankers complaining about the dangers of government “just printing money” in that instance.  If it is acceptable to create public money to sustain private commercial finance (“quantitative easing”), why isn’t “quantitative easing for people” (and the environment, infrastructure, etc.) also a feasible, responsible policy option?  Why can’t public currencies be created to serve all sorts of public needs without incurring government debt?

Mellor explains that the problem is largely one of ideological framing:  Proponents of “handbag economics” demand that we regard money as a purely commercial asset, not as a public asset.  They demand that money creation occur chiefly through the private profit-making of banks (loans), and not through the government as a way to serve public purposes.

Mellor laments that “commentators from both the left and right have largely ignored the democratic potential of money.  They focus on the ‘real economy,’ which is generally taken to be the capitalist productive sector.  Money is seen as a secondary aspect, whereas it should be seen as an active, politically constructive agent.  All money is a credit that represents an entitlement for the holder, but not all money represents debt.”

Because over 95% of money in the more developed national economies is held in bank accounts with only a small amount circulating as cash (coins and notes), private sector debt-based money is perceived to be the unquestionable norm. But Mellor explains that it is entirely responsible to reconceptualize our understanding of money:  Instead of seeing money as something that government must borrow from banks, we should see it as a debt-free public supply of currency that could prioritize socially necessary expenditures, without first raising revenues through taxes.

There need be no “deficit”; the money would simply represent a public source of new money, a function that private banks already perform.  The difference would be that public currencies would be interest-free and support democratically determined needs – not primarily the commercial priorities of private lenders.

Mellor has called for recognition of the existence of a “public circuit of money” that operates according to a different logic than the dominant monetary system.  Unlike money created through a commercial finance circuit, in which money is created as debts that must be repaid, a public money circuit could create money free of debt.  There would be no impetus for repayment.  What would be requires is a sufficient return of that money to the public circuit – through taxes, charging for government services or selling investment opportunities to the public – in order to prevent inflation.

Mellor agrees that how to set the proper policies for this goal would be a matter of public debate.  She imagines an independent monetary authority assessing the overall amount of money that should be retrieved “so as to leave enough to enable all commercial and public payments to be made while avoiding inflationary pressures.”

Mellor’s ideas have great appeal for these times, but they will first require public understanding and political movements to gain sufficient traction.  One of their greatest virtues is that “democratic money” could provide the wherewithal to meet all sorts of public needs, especially ecological and social needs, at a time when commercial finance will deign to create new money only if it first meets its high-profit, high-debt criteria.

This is a much longer dialogue than a blog post can manage, of course, which is why I recommend that you chase down Mary Mellor’s fascinating book Debt or Democracy.  [Some of this blog post derives from the workshop report, “Democratic Money and Capital for the Commons.”]

The post Mary Mellor’s “Debt or Democracy”: Why Not Quantitative Easing for People? appeared first on P2P Foundation.

Reposted from our sister site Commons Transition, Dan Hancox shares the lowdown on a few projects aiming to bring the Commons to the institutional sphere.

As construction noise and traffic hummed in the background, two Turkish women sat on a park bench in Istanbul, talking about what they want from their city’s public spaces: “chit-chats, picnics, resting, walking, sunbathing.”

Other voices chimed in saying public spaces should be used for artistic activities, sports, theatrical performances, traditional games, or just congregating to drink coffee and talk. “Nothing happens if we don’t come together,” said another.

The clips are from a short Turkish film released this year, called Bi’ Dusun Olsun – Imagine It Into Being – as part of a European film project called Radical Democracy: Reclaiming the Commons.

In their sunny idealism, they hardly sound like controversial demands, and even less like revolutionary rallying cries.

Yet these types of demands were what sparked the protests against the planned demolition of Istanbul’s Gezi Park in 2013, which would have been replaced by a Ottoman architecture style shopping mall.

The demonstrations grew into a nationwide uprising involving millions of people, and a police response that resulted in several deaths, thousands of injuries and arrests. At times, the unrest threatened to bring down the government of Turkish President Recep Tayyip Erdogan, who at the time was prime minister.

The protesters’ message was clear: Public space is serious business.

The notion of “the commons” is an ancient one. It is a broad term covering shared spaces, goods, natural resources, creativity and knowledge, which is held and governed collectively and democratically, rather than privately.

The concept has been growing in popularity among Europe’s social movements, especially since 2011, the year Spain’s “indignados” protesters took over their city squares, following the example of Egyptians in Cairo’s Tahrir Square.

Later that year, the international “Occupy” movement used similar tactics.

Bi’ Dü?ün Olsun – Ça?r? from MODE Istanbul on Vimeo.

Going mainstream?

Now, the idea of the commons as an organising principle has moved from the streets to the heart of the European political establishment. For the first time, one of the European Parliament’s 28 Intergroups – groups made up of members from different political groupings, and that focus on certain issues – is devoted to discussing and defending the commons.

The Intergroup on Public Services and Common Goods was launched at the end of May, with support and members from the Progressive Alliance of Socialists and Democrats, the Greens, the European United Left and Italy’s Five Star Movement.

The Intergroup’s stated goal is to defend shared, common goods – such as water, medical innovations and open-source code – from privatisation.

Last week, the Intergroup hosted an unlikely meeting of grassroots activists and members of the European Parliament (MEPs) inside the parliament building, to mark the finale of the “Reclaiming the Commons” project that spawned the Turkish film mentioned above, among others.

In a sense, it was an incongruous location for the discussion – in a meeting room in the heart of bureaucratic politics.

For many of the commons activists, the European Parliament would represent exactly the type of institution from which democracy needs reclaiming.

“I’m amazed we managed to get the Intergroup accepted, to be honest,” British Labour MEP Julie Ward said after the meeting.

Ward, who was elected for the first time in 2014, believes that activist movements have recently begun to filter up into EU parliamentary politics.

“There are a lot of new MEPs here, and a lot of them have activist or campaigning backgrounds,” explained Ward.

“And for some of us with activist backgrounds, we don’t want to let it go. Public services are under threat everywhere, and it’s up to us to stand up for them,” Ward said.

The tussle between state and private ownership highlights why the commons has become a fashionable piece of language – especially given recent history.

Since the fall of the Berlin Wall, centre-left parties across Western Europe have jettisoned the word “socialism”, or of anything that smacks of shared ownership.

In the case of the UK’s Labour Party, this was reflected in the modification of the party constitution’s Clause Four, on Tony Blair’s initiative, to remove a reference to “common ownership”.

But, some looking at the composition of the Intergroup, ask if the word “commons” is in fact just modish code for “socialism”? Ward said she is proud to have described herself as a socialist when campaigning, but noted that the Greens were also members of the Intergroup.

Ward conceded that such a working group – tasked with obstructing privatisation, dismantling intellectual copyright and regulating market intervention – will face staunch opposition from business friendly MEPs in the European Parliament and lobbyists close to it.

But, Ward added, “politics is a fight”.

The ‘institutional glass ceiling’

The idea of the commons can often seem quite abstract, making it potentially difficult for the Intergroup to focus on tangible goals or legislation. But it doesn’t have to be that way, explained Sophie Bloemen of the Commons Network, one of the guest speakers at the European Parliament event.

“If you talk about participatory democracy, [the Intergroup] already is serving as an anchor for these political networks to convene,” Bloemen said.

“I think it could potentially start formulating policy proposals on specific issues – in particular the protection of water, and the digital commons,” explained Bloemen.

But the MEPs will not be able to do this alone, Bloemen believes, and will need to reach out to the same activists who generated this energy in the first place. This is something she witnessed first-hand while living in Oakland during the Occupy movement.

As an example of this grassroots energy, Bloemen cited the collaborative spirit of so-called “hacker spaces” for sharing knowledge and skills to collectively solve problems in local communities.

“These hacker spaces are not just a geeky computer thing. It wasn’t all about computer code or open-source software. There were a lot of different groups, it was very community-based. For example, there was a sewing group, and one on participatory budgeting, and a food network. It was about pooling resources, about a community doing things together,” Bloemen told.

In “Municipal Recipes“, a Spanish film produced as part of the “Reclaiming The Commons” project about the citizens’ platforms that last month launched many “indignados” into power in Barcelona, Madrid and beyond, Gala Pin asked her fellow activists, “How do you not hit your head on the institutional glass ceiling?”

Shortly after the film was made, Pin was elected to Barcelona town hall along with 10 other city councillors. In Brussels and in Barcelona, the coming months and years are going to provide a fascinating answer to Pin’s question – can the people elected to defend the commons do so from inside the institutions of power?

Recetas municipales. Una conversacio?n sobre el cuidado de las ciudades from ZEMOS98 on Vimeo. (Press “cc” to activate English subtitles)

Lead image by Olmo Calvo;

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