Since the 2008 global financial meltdown and bailouts, trust is disappearing: in banks, stock markets, corporations, governments, religious institutions, experts, academia, political parties’ rhetoric and even the Internet and social media. This mistrust has fueled global populists across the political spectrum, with ubiquitous signs at their rallies, “Where’s MY Bailout?”  We see the rise of cryptocurrencies becoming bubbles, as many seek alternative stores of value and mediums of exchange they hope will prove more trustworthy than central banks’ fiat currencies: dollars, yen, euros, pounds, pesos backed only by their governments’ promises.

Trust is a precious commodity which undergirds all humanity’s markets, trading and exchange. Trust does not scale easily, abiding in face-to-face, handshake interactions in humanly-scaled communities, based on common agreements, shared infrastructure, resources and culture. Trust does not reside in packages of software, apps, AI, big data or social media platforms, as we learned in 2016. So trust was sought in the blockchain platforms first developed by the mysterious computer expert, Satoshi Nakamoto in 2009 for his bitcoin. Now, over 1000 blockchain-based start-up companies and blockchains underlie the over 1,500 cryptocurrencies traded on electronic exchanges including Coinbase. These computer-based distributed ledger blockchains are designed to engender trust by allowing person-to-person ability to verify each transaction or contract with a permanent record open to all.

Crypto promoters aspire to create global-level trust in the value of cryptocurrencies due to this transparency and their protocols limiting finite amounts to be issued, to create artificial scarcity. This vision is sullied by the many cases of criminality, hacking, stealing, frauds and other shenanigans. Nevertheless, faith and trust in these cryptos remains strong, since proponents say central banks also manipulate their fiats — which is true!  We see fiat money being printed on TV shows! Yet fake visuals of cryptos, such as the shiny golden colored coins are also shown with news about bitcoin. This is a “bit-con” since bitcoin is a digital algorithm, a string of computer code which is unlikely to become a ubiquitous medium of exchange or a store of value.

Still, the allure to libertarians, hackers and speculators is that cryptos exist with no middleman, for peer-to-peer global private use with no governments, no banks or financial intermediaries and few outside rules except those imposed by issuers. Millions of hackers worldwide soon began solving the ever more complex mathematical puzzles needed to claim their next block of newly minted bitcoin. These “miners” now use some 30 terawatts annually of fossil-generated electricity, equivalent to the consumption of a country the size of Ireland, plus gobs of computer power. They are now affecting the Earth’s climate as I described in “Hey COP23: Bitcoin Miners Exploding CO2 Emissions!”

The loss of trust in fiat dollars, pounds, yen, euros, pesos we always use to pay each other cannot be replaced by cryptos—in spite of the current hype, as traditional financial markets now trade bitcoin futures and ETFs concocted by eager Wall Street players.  Nations including Russia, North Korea and Venezuela under international sanctions for violating norms, are now issuing their own cryptos to escape financial controls set by governments for fiat currency transactions. How will this war between governments and libertarian hackers’ cryptos versus fiats work out?

Clearly, trust in all forms of money is fading. Today, people barter more goods and services on electronic platforms, swap and match, often directly without any use of currencies on platforms like Freecycle, and for everything from baby-sitting, sharing garden tools, spare rooms, vacation homes to finding their true love matches! The familiar fiat currencies we still spend our lives earning, investing and saving for our retirement are losing their dominance in our lives and with that their role as a promised store of value. For example, few fiat currencies remain stable, as we see on FOREX trading screens daily. Even our US dollar has lost about 80% of its value over the past 30 years— due to inflation, budget deficits, interest payments to bond-holders on our national debt, which recent tax cuts may increase by another $1.5 trillion.

Most US and European citizens register disbelief when they learn that all their national money in circulation is created out of thin air by private banks when they create loans and is therefore only backed by other peoples’ debts, not gold or any other commodity of value! Governments in Britain, the USA and most countries gave their sovereign power to coin their own national money away to their private banks and allowed them to charge interest on their loans as well, as Ellen Brown explains in “Web of Debt”, (2010). Our TV Special “The Money Fix” details on how this happened in the USA with founding of the Federal Reserve in 1913 and the rise of local currencies, barter and credit circles.

Governments’ policies became ever more erratic, swinging between obsolete textbook policy prescriptions: either “stimulation “(quantitative easing QE, i.e. money-printing, tax cuts, lowering interest rates, buying dud mortgage-backed securities) or “austerity “(cutting safety nets, education, healthcare, public services, selling off public assets) while continuing to bail out too-big-to-fail firms without prosecuting their reckless executives. Ethical Markets dissects such obsolete economic policies and offers more realistic alternatives (www.ethicalmarkets.com).

Today, failing policy levers are being bypassed by the rise of cryptos, crowdfunding, peer-to-peer lending, electronic barter, information-based direct trading I describe in “FINTECH: Good and Bad News for Sustainable Finance”.  They reveal the stunning truth: Money Is Not Wealth and worse, it is no longer a reliable store of value!  All those dollars we pinched to save for our retirement are losing their value until we use them to buy something useful, and shift our investing from obsolete, polluting, unsustainable corporations into trustworthy, sustainable, well-managed and transparent enterprises so we can monitor their performance and social impacts ourselves.

As the shock of this reality sets in, it reveals how most financial market players try to make money out of money, trading stocks with each other which are tradeable contracts issued by big companies as explained by law professor Lynn Stout in “The Shareholder Value Myth”, (2012). The latest Wall Street bubbles are index-based stocks and ETFs, reaching additional levels of abstraction. I first unraveled these truths in “Creating Alternative Futures” (1978,1996) and “The Politics of the Solar Age” (1981,1986). I described the essential unpaid tasks underpinning the cash-based sectors measured in GDP and incomes of mostly male “breadwinners”. Textbooks designated their wives to perform all the work of maintaining households, raising the next generation, caring for elders, volunteering in community service —all unpaid, as in this diagram (Cake). Economic textbooks described all this vital productive work I called the Love Economy as “non-economic”!

Feminists emerged worldwide to insist this work be recorded and paid, as in Marilyn Waring’s “If Women Counted” (1990); lawyer Riane Eisler’s Caring Economy campaign and Kate Raworth’s “Doughnut Economics” (2017). I documented how thousands of communities around the world starved by their central governments of fiat currencies by austerity programs, simply created their own local currencies, like the famous “Berkshares” issued by the Schumacher Society and circulated, even by local banks in Great Barrington, MA. These townsfolk realized that using their own local currencies and credit could clear their local markets and employ their people meeting local needs. Photographs of thousands of such local currencies issued all over North America and Mexico are catalogued in, “Depression Scrip of the United States 1930” (1961). They taught a key lesson: money cannot be a store of value –it must circulate in the community in order to meet needs and create jobs and prosperity. To assure these currencies were not saved, but spent, they all carried expiration dates and require stamps to re-validate them regularly affixed until they finally expired.

So this myth of money as a store of value is now threadbare. Electronic platforms open up new possibilities for direct barter, with all the fintech exchanges now disrupting traditional finance and banking. These innovations offer hope that both cryptos and fiats may eventually be properly managed and regulated in the service of decentralized prosperity and focus on the new model; the UN’s Sustainable Development Goals (SDGs) now ratified by 195 governments. Accountants are renovating their models for information-based economies  where services account for some 80% of production: from unpaid voluntary work to intellectual property, R &D, design, brands, networks, “infostructure” (broadband, internet) and institutions, described in “Capitalism Without Capital” (2018). The International Integrated Reporting System (IIRC) models six forms of capital: finance, built facilities, intellectual, social, human and natural capitals, which then measure the extent to which companies and governments enhance or degrade all six forms. This accounting revolution also from the Sustainable Accounting Standards Board (SASB); the Chartered Institute of Management Accountants www.cimaglobal.com, (ICAEW) finally discloses and internalizes all those “externalities” into companies’ balance sheets and provides full spectrum accounting— beyond money as the single metric. Honest money: currencies fully backed 100% for example, by kilowatt hours of renewable electricity, productive assets and services can continue to be useful as mediums of exchange. Expert Shann Turnbull in “Is A Stable Financial System Possible”, shows why currencies cannot be a predictable store of value, i.e. money is not wealth.

Cross-posted with permission from Ethical Markets.

Photo by reynermedia

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In May 2017, a team of researchers at the University of Oxford published the results of a survey of the world’s best artificial intelligence experts, who predicted that there was a 50 percent chance of AI outperforming humans in all tasks within 45 years. All human jobs were expected to be automated in 120 years, with Asian respondents expecting these dates much sooner than North Americans. In theory, that means we could all retire and enjoy the promised age of universal leisure. But the immediate concern for most people is that they will be losing their jobs to machines.

That helps explain the recent interest in a universal basic income (UBI) – a sum of money distributed equally to everyone. A UBI has been proposed in Switzerland, trials are beginning in Finland, and there is a successful pilot ongoing in Brazil. The cities of Ontario in Canada, Oakland in California, and Utrecht in the Netherlands are planning trials; two local authorities in Scotland have announced such plans; and politicians across Europe, including UK Labour Party leader Jeremy Corbyn, have spoken in favor of the concept. Advocates in the US range from Robert Reich to Mark Zuckerberg, Martin Luther King, Thomas Paine, Charles Murray, Elon Musk, Dan Savage, Keith Ellison and Paul Samuelson.  A new economic study found that a UBI of $1000/month to all adults would add $2.5 trillion to the US economy in eight years.

Welfare can encourage laziness, because benefits go down as earned income goes up. But studies have shown that a UBI distributed equally regardless of income does not have that result. In 1968, President Richard Nixon initiated a successful trial showingthat the money had little impact on the recipients’ working hours. People who did reduce the time they worked engaged in other socially valuable pursuits, and young people who were not working spent more time getting an education. Analysis of a similar Canadian trial found that employment rates among young adults did not change, high-school completion rates increased, and hospitalization rates dropped by 8.5 percent. Larger experiments in India have reached similar results.

Studies have also shown that it would actually be cheaper to distribute funds to the entire population than to run the welfare services governments engage in now. It has been calculated that if the UK’s welfare budget were split among the country’s 50 million adults, each of them would get £5,160 a year.

But that is not enough to cover basic survival needs in a modern economy. Taxes would need to be raised, additional debt incurred, or other programs slashed; and these are solutions on which governments are generally unwilling to embark. The other option is “qualitative easing,” a form of central bank quantitative easing in which the money flows directly into the real economy rather than simply into banks. In Europe, politicians are taking another look at this once-derided “helicopter money.” A UBI is being proposed as monetary policy that would stimulate productivity without increasing taxes. As Nobel prize-winning economist Joseph Stiglitz, former senior vice president of the World Bank, explains:

. . . [W]hen the government spends more and invests in the economy, that money circulates, and recirculates again and again. So not only does it create jobs once: the investment creates jobs multiple times.

The result of that is that the economy grows by a multiple of the initial spending, and public finances turn out to be stronger: as the economy grows, fiscal revenues increase, and demands for the government to pay unemployment benefits, or fund social programmes to help the poor and needy, go down. As tax revenues go up as a result of growth, and as these expenditures decrease, the government’s fiscal position strengthens.

Why “QE for the People” Need Not Be Inflationary

The objection  to any sort of quantitative easing in which new money gets into the real economy is that when the money supply grows too large and consumer prices shoot up, the process cannot be reversed. If the money is spent on a national dividend, infrastructure, or the government’s budget, it will be out circulating in the economy and will not be retrievable by the central bank.

But the government does not need to rely on the central bank to pull the money back when hyperinflation hits (assuming it ever does – it has not hit after nearly nine years and $3.7 trillion in quantitative easing). As Prof. Stiglitz observes, the money issued by the government will return to it simply through an increase in fiscal revenues generated by the UBI itself.

This is due to the “velocity of money” – the number of times a dollar is traded in a year, from farmer to grocer to landlord, etc. In a good economy, the velocity of the M1 money stock (coins, dollar bills, demand deposits and checkable deposits) is about seven; and each recipient will pay taxes on this same dollar as it changes hands. According to the Heritage Foundation, total tax revenue as a percentage of GDP is now 26 percent. Thus one dollar of new GDP results in about 26 cents of increased tax revenue. Assuming each of the seven trades is for taxable GDP, $1.00 changing hands seven times can increase tax revenue by $7.00 x 26 percent = $1.82. In theory, then, the government could get more back in taxes than it paid out.

In practice, there will be a fair amount of leakage in these returns due to loopholes and deductions for costs. But any shortfall can be made up in other ways, including closing tax loopholes, taxing the $21 trillion or more hidden in offshore tax havens, or setting up a system of public banks that would collect interest that came back to the government.

A working paper published by the San Francisco Federal Reserve in 2012 found that one dollar invested in infrastructure generates at least two dollars in “GSP” (GDP for states), and “roughly four times more than average” during economic downturns. Whether that means $4 or $8 is unclear, but assume it’s only $4. Multiplying $4 by $0.26 in taxes would return the entire dollar originally spent on infrastructure to the government, year after year. For precedent, consider the G.I. Bill, which is estimated to have cost $50 billion in today’s dollars and to have returned $350 billion to the economy, a nearly sevenfold return.

What of the inflation formula typically taught in economics class? In a May 2011 Forbes article titled “Money Growth Does Not Cause Inflation!”, Prof. John Harvey demonstrated that its assumptions are invalid. The formula is “MV = Py,” meaning that when the velocity of money (V) and the quantity of goods sold (y) are constant, adding money (M) must drive up prices (P). But as Harvey pointed out, V and y are not constant. As people have more money to spend (M), more money will change hands (V), and more goods and services will get sold (y). Demand and supply will rise together, keeping prices stable.

The reverse is also true. If demand (money) is not increased, supply or GDP will not go up. New demand needs to precede new supply. The money must be out there searching for goods and services before employers will add the workers needed to create more supply. Only when demand is saturated and productivity is at full capacity will consumer prices be driven up; and they are not near those limits yet, despite some misleading official figures that omit people who have quit looking for work or are working only part-time. As of January 2017, an estimated 9.4 percent of the US population remained unemployed or underemployed. Beyond that, there is the vast expanding potential of robots, computers and innovations such as 3D printers, which can work 24 hours a day without overtime pay or medical insurance.

The specter invariably raised to block legislators and voters from injecting new money into the system is the fear of repeating the notorious hyperinflations of history – those in Weimer Germany, Zimbabwe and elsewhere. But according to Professor Michael Hudson, who has studied the question extensively, those disasters were not due to government money-printing to stimulate the economy. He writes:

Every hyperinflation in history has been caused by foreign debt service collapsing the exchange rate. The problem almost always has resulted from wartime foreign currency strains, not domestic spending. The dynamics of hyperinflation traced in such classics as Salomon Flink’s The Reichsbank and Economic Germany (1931) have been confirmed by studies of the Chilean and other Third World inflations. First the exchange rate plunges as economies pay for foreign military spending during the war, and then – in Germany’s case – reparations after the war ends. These payments led the exchange rate to fall, increasing the price in domestic currency of buying imports priced in hard currencies. This price rise for imported goods creates a price umbrella for domestic prices to follow suit. More domestic money is needed to finance economic activity at the higher price level. This German experience provides the classic example.

In a stagnant economy, a UBI can create the demand needed to clear the shelves of unsold products and drive new productivity.  Robots do not buy food, clothing, or electronic gadgets. Demand must come from consumers, and for that they need money to spend. As robots increasingly take over human jobs, the choices will be a UBI or to let half the population starve. A UBI is not “welfare” but is simply a dividend paid for living in the 21^st century, when automation has freed us to enjoy some leisure and engage in more meaningful pursuits.

Ellen Brown is an attorney, founder of the Public Banking Institute, a Senior Fellow of the Democracy Collaborative, and author of twelve books including Web of Debt and The Public Bank Solution. A 13^th book titled The Coming Revolution in Banking is due out this fall. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.

Photo by Mister Higgs

The post How to Fund a Universal Basic Income Without Increasing Taxes or Inflation appeared first on P2P Foundation.

Local initiatives can lead to modest gains in sustainability, but not the large-scale transformation we need. Meeting that challenge will require, among other critical factors, substantial changes in how we create and use money. As its history demonstrates, money is a social and political construct. It is the privatization of money—and not money itself—that has fueled social exploitation and environmental destruction. Money could, by contrast, help advance a Great Transition—but only if it is reclaimed for the public. Contrary to neoliberal assertions, the state can create money free of the debt that drives destructive growth and fosters inequality. Such public money can facilitate the provision of economic security and sustainable livelihoods for all. But for such a system of public money to work, there must be robust democratic control over monetary decision-making along with vigorous oversight of its implementation.

Earlier this week, we featured David Bollier’s commentary on Mary Mellor’s excellent paper on monetary policy. Now you can read the full version, originally published in the Great Transition Initiative, below.

Index

Why Money | Myths About Money | A Brief History of Money | Reclaiming Money for the People | Democratizing Money | Conclusion: Debt-Free Public Money for Sufficiency Provisioning | Endnotes

Why Money?

If we want to transition to a more just and sustainable society, we then need to be clear about where we are today.¹ The majority of the world’s population—in both developed and developing countries—now lives in urban areas. This demographic reality is unlikely to change as people have shown no eagerness to return en masse to rural livelihoods. Local, face-to-face innovations in production and exchange can be important steps, prefiguring the progressive society-wide changes needed. However, they are most appropriate for relatively self-contained areas, and cannot aggregate to the systemic transformation required.

In the contemporary world, provisioning, the creation and distribution of basic goods and services, depends on money.² Most people live in market economies with moderate- to long-distance supply chains. Under market-driven capitalism, individual livelihoods and public services depend on the success of the market, and money functions both as the medium of exchange and as the driving force behind market participation. The primary aim of the capitalist market economy is not the provision of essential goods and services for the people, but the investment of money and labor in activities that provide even more money (i.e., profit) for the owners of capital. This results in a two-step economy: people work to secure an income in order to pay for the basic goods and services they need to survive. And because work is necessary for survival, and the market determines its purpose and availability, people can end up in jobs that are harmful to themselves, others, and the environment.

Money has rightly gotten a lot of bad press. The love of money, or avarice, has been blamed for overconsumption and the exploitation of people and the planet. That said, it is difficult to envision how goods and services could be produced and circulated on a large scale without some mechanism to facilitate comparisons of value and the exchange of goods and services. It is not money itself that is the source of the imbalance in our relationship to one another and nature, but rather the way money is created and circulated in modern market economies.

The existence of money, importantly, does not entail the existence of a market, for some form of money has been around in almost all human societies. Money simply provides a recognized unit of value. That unit can be a price in the market, but it can also be the size of a gift or a measure of need. Equating money with coinage, as is commonly done, confuses form with function. It implies that money embodies value when it simply represents value. Money can take the form of something with use value (cattle, grain), something with social value (a special stone, shells), something with little or no value (paper, wood, base metal), or even something with no physical form (bank transfers, verbal promises). The unit of value may be either tangible (sheep, beads) or intangible (pound, dollar, euro).

Money, in other words, is a social and political construct. Using money does not intrinsically encourage human exploitation or ecological destruction. It is neoliberal capitalist ideology that puts monetary gain above social and ecological concerns, and it is the private, bank-issued money system that leaves us with a pernicious cycle of debt and growth. Money could encourage socially and ecologically sustainable production and consumption, but only if it ceases to be a creature of the market and is reclaimed as a social and public representation of value.

Visions of ecologically sustainable communities often look not to the state, but to the social economy, which occupies a space between the state and the market.³ Key features of the social economy such as community enterprises, cooperatives, and local markets based on local money are all beneficial, but they are insufficient for a Great Transition. Creating a just and sustainable future is a massive undertaking that will require a level of coordination that only the state can provide. We thus need to look at the potential of democratically governed economies in which money is treated as a public resource for sustainable provisioning.

However, neoliberalism, which has influenced so much of the conventional thinking about money, is adamant that the public sector must not create (“print”) money, and so public expenditure must be limited to what the market can “afford.” Money, in this view, is a limited resource that the market ensures will be used efficiently. Is public money, then, a pipe dream? No, for the financial crisis and the response to it undermined this neoliberal dogma. The financial sector mismanaged its role as a source of money so badly that the state had to step in and provide unlimited monetary backing to rescue it. The creation of money out of thin air by public authorities revealed the inherently political nature of money. But why, then, was the power to create money ceded to the private sector in the first place—and with so little public accountability? And if money can be created to serve the banks, why not to benefit people and the environment?

Myths about Money

One of the most significant obstacles to reclaiming money for the public good is the widespread misunderstanding of what money is. The conventional history of money rests on a series of myths that obscure its social and political origins. The first myth is that money and the market share a common origin, with modern money-based economies emerging from non-money barter. There is no historical evidence of widespread barter-based economies, and money, as the next section will explain, has a far more complex social and political history. The second myth is that money originated as precious metal coinage. While money has at times been made of such metal, it has also taken far less valuable forms whose use long predated the invention of coinage. Seeing money as made of something valuable (gold, silver) suggests that money is desirable in itself, an embodiment of value. Recognizing that money is valueless in itself (base metal, wood, paper) helps one to see it as a token representing a social relationship—what it really is.

Assumptions about the historical importance of precious metal coinage gave rise to a third myth: that banking activity emerged from the management of precious metal deposits that eventually came to be represented by paper money and accounting records. In reality, banking activity originated long before precious metal coinage, with accounting records as a central feature. This historical misapprehension, in turn, helped create a fourth myth: that banks today merely link savers (depositors) and borrowers. As has been increasingly recognized by the Federal Reserve, the Bank of England, and the International Monetary Fund, and has long been argued by monetary theorists, banks, in fact, create new money when they make loans, crediting deposits of previously nonexistent money to the accounts of those who receive them. Public monetary authorities retain a monopoly on the production of cash (notes and coin), but the money that banks create is also part of the national money supply and circulates through the economy as such.

These widespread myths all rest on a misreading of the history of money. So what is the real history?

A Brief History of Money

The earliest forms of money were used almost entirely in social contexts, e.g., payments and fines for injustice or injury, dowries, and gifts to build social solidarity or avoid conflict. As centralized states emerged, money appeared in new forms such as tribute payments, state expenditures, and taxation. In the earliest states, the use of money was recorded in hieroglyphs or represented in token form as clay tablets. Autocratic rulers with administrative centers in palaces or temples determined the form and available supply of money. All of this occurred thousands of years before the appearance of coinage around 600 BCE.

Far from being a product of markets, coinage was created and controlled by rulers and played a central role in the growth of the Greek and Roman empires. Coinages were associated with particular centers of power because the creation of money confers the benefits of first use, such as seigniorage (the difference between the face value of a coin and its cost of production). The power to create and circulate money is likewise linked to the sovereign power to tax. Rather than relying on the traditional receipt of tribute, a ruler could pay for goods and services with money that could later be reclaimed through taxation.

Commodity markets gradually emerged alongside city-states and empires. While merchants used the money created and controlled by the governments, they also developed their own as a means of dealing with value, debts, and payment. This new commercial money took the form of verbal or written promises or physical representations such as tally sticks (a promise to pay etched into a stick which was then split down the middle, the two parties each taking half). Central to this commercial money, whatever form it took, was debt: one person’s obligation to pay back another.

The emergence of the capitalist epoch, with its paper promises and modern banking, saw the gradual privatization of the sovereign’s power to create money. Constant conflict, resistance to increases in taxation, and shortages of precious metals weakened the grip of rulers. Control of money fell into the hands of the newly emerging economic elite, and rulers became increasingly dependent on borrowing. Over time, states built up large national debts to their banking sector, creating the financial dependency we see today.

A crucial step in this privatization process was when commercial money became the public currency. The Bank of England, for example, was originally formed in 1694 to make loans to the state. As time passed, its notes, backed by a nebulous “promise to pay,” were designated as currency. Eventually, all banks stopped issuing money in their own names, instead issuing it as public currency (e.g., pounds sterling). This step resulted in two major changes. First, the public became the backstop for the banks that were creating money in its name. Second, whereas the sovereign could create money free of debt, the banks could not. Money created and lent by banks must be repaid with interest. This critical difference drives growth because new debt is created to repay old debt. And if this debt-based system falters, so, too, does the money supply.

Today, our reliance on debt has become socially, ecologically, and economically unsustainable. It is socially unsustainable because creating money as debt exacerbates inequality. Money flows to those most able to pay back loans with interest—a dynamic that enriches the rich and traps the poor in long-term debt relationships. It is ecologically unsustainable because creating money through debt drives economic expansion. If loans are to be repaid with interest, there must be growth of some form. This does not necessarily cause ecological damage (it could just bid up the price of existing assets), but there is certainly no basis for degrowth or even a steady state economy. It is economically unsustainable because basing the money supply on debt will eventually lead to crisis when governments, businesses, and citizens cannot or simply will not take on any more debt.

Orthodox economics cements the growth imperative. By treating money as the embodiment of value generated in the market economy, it ties money creation to commercial profitability and economic growth. Economists and policymakers often portray government spending as akin to that of a household. Public sector expenditures, they argue, depend upon commercial “wealth creation” in the same way that a household’s spending is dependent on the earnings of the breadwinner.⁴ The more productive the economy, the more taxable income is available for public purposes. As a result, for those concerned with meeting public needs, growth is good, no matter the long-term cost.

The orthodox view of the economy ignores many other important sources of value—unpaid domestic labor, community, conviviality, and ecological resilience. There is an obvious desire to simply protect these areas from commodification, but doing that alone would leave the rest of the system intact. Instead, we need to reshape the monetary system to prioritize what really matters and devalue the current preoccupations of market capitalism.

We should start by treating money as an active force, rather than a passive one. In conventional economics, money flows through the economy reflecting expenditure and investment choices. But the crucial question of how money enters or leaves the economy is left out. History shows that there are two agents—states and banks—that can create new money. The use of this money, in turn, creates new forms of wealth. Historically, rulers raised armies and built forts and palaces. Banks created credit for trade and production. In modern states such as Britain, new money has provided consumer credit, particularly mortgages, turning houses into financial assets rather than just places to live. In contrast, money created to foster provisioning based on concepts of sufficiency and social justice would aim to create “wellth,” that is, well-being for all.

Reclaiming Money for the People

The social and public heritage of money needs to be reclaimed and its governance democratized. Money can represent social and public value, not just commercial and private value. And rather than being only a mechanism for profit-driven exchange, money can be a tool for the provision of goods and services people actually use and for guaranteeing everyone a right to livelihood, for example, through a basic income.

While the commercial use of money drives growth, the public and social allocation of money would provide people with what they need directly, thereby supporting a one-step rather than two-step economy. The development of a one-step economy is essential to a Great Transition to a just and sustainable society. By relieving people of the need to undertake unsustainable and unnecessary work in order to obtain money, it would reduce ecological strain and economic inequality. And by freeing people from a dependence on the market, it would create more time for the avocational, personal, social, and convivial activities that make life worth living.

Neoliberal economics denies that all of this is possible. Indeed, politicians routinely claim that there is “not enough money” for our basic social needs. But despite the claims and strictures of neoliberal ideology, states can and do “print money.” First, it is produced ex nihilo by central banks to provide cash and support for the money-creating activities of the banking sector. Second, money is created and circulated as the government spends, in the same way that banks create money as they lend. States spend money and then offset their expenditures against tax revenue and other income received. States, however, do not fill their tax accounts before they spend: the balance between public expenditure and public income only becomes clear after the expenditures have occurred. The political choice at that point is what to do with any “deficit,” that is, the surplus of expenditure over income. The extra money created by state expenditures could be left to flow around the economy, producing in effect a perennial “overdraft” at the national bank. Or the deficit could be shifted to the financial sector through “government borrowing,” thereby increasing the national debt (as happens in most capitalist economies).

All modern currencies are “fiat money,” created out of nothing, their value sustained by public trust and state authority. So why are states and their citizens shackled in debt? Why can’t the people simply create the money they need free of debt? Why can’t that money be circulated in a not-for-profit social or public sector? Why base the principles that govern our economic system on the butcher, the baker, the candlestick maker, and the hidden hand of the market rather than the doctor, the teacher, the care worker, the artist, and the not-so-hidden hand of a solidarity economy?⁵ As these questions make clear, freeing ourselves of misconceptions about money opens the door to new possibilities for driving a transition to a just and sustainable economy.

Control of the money supply and, more generally, the monetary system confers a tremendous amount of power. Can we entrust the state with it? Neoliberals warn of the dangers of state intervention in a market-based system. Proponents of social and local economies likewise harbor suspicions of the state, particularly its distant and opaque bureaucratic apparatuses. But without an expanded role for the state, many people will continue to fall through the gaps in the market and voluntary sectors. However, since many states have proven to be inefficient, corrupt, and autocratic, a public money system would be acceptable only if it were more robustly democratic. We cannot assume that public authorities will use money wisely unless they are subject to democratically determined mandates and effective public scrutiny. Exclusive control of the money supply must not simply be put in the hands of the government in power or the state apparatus and left unchecked. Public management of the creation and allocation of money must be transparent and accountable.

Democratizing Money

A shift from profits to provisioning would put the main focus of the economy where it belongs: on the sustainable meeting of needs. That goal would be met through a combination of a basic income (that is, a monetary allocation to each individual as matter of right) and a budget for collective expenditures on public services and infrastructure. The democratic process would entail the development of party platforms followed by participatory budgeting, in the process described below.

At national and regional levels, political parties would propose an overall allocation of funds among the social, public, and commercial sectors—as well as levels for the basic income—as part of their election platforms. Actual allocations would be those of the parties in power. Money to fund these democratically determined allocations would be provided through grants or loans administered by banks, using funds provided by the central bank and operating under social, public, or cooperative structures. In this process, the utilitarian purpose of banks—holding deposits, conducting transactions, and balancing accounts—would be preserved, but they would no longer be able to create money or engage in speculative finance. Where the private sector requires loans for sustainable and socially just investment, this would be accommodated by either an allocation of public money via these banks for lending or a transfer of existing money from private investors.

Public expenditure would be through direct spending of money created free of debt. Citizen and user-producer forums would identify specific public expenditure needs, providing input into local, regional, and national budgets. Given the complexity of the process, these budgets and the corresponding allocations would be set for at least a five-year period, with a modest margin for interim adjustments. Adoption of a participatory and transparent approach to decision-making would militate against domination by any particular group or body. The setting of long-term budgets would ensure that governments could not substantially amend proposed money creation or expenditure levels during the run-up to elections.

Because such a system would result in a massive increase in public expenditure, a phase-in would be prudent. Even with that, the additional money flowing into the market sector could increase the threat of inflation in the short term. But reconceptualizing the role of taxation offers a way to address the problem of inflation. In the conventional view, the state is dependent on tax revenue extracted from the “wealth-creating” private sector. Public expenditure is a burden on the hard-working taxpayer—who is almost never portrayed as a beneficiary of public services. If money is created exclusively by the commercial sector, the conventional view is in many respects correct. The public sector is dependent on the money raised by taxation, and absent borrowing, taxation must precede public expenditure. On the other hand, if money is created and circulated initially by the public sector, then there is no need to “raise” money through taxation. Rather than preceding public expenditure, taxation would follow it, retrieving publicly created money from circulation in amounts sufficient to keep inflation in check. If the public sector is much larger than the private sector, taxes might have to be quite high.

While levels of budgets and basic incomes can be determined through an open, democratic process, the assessment of the impact of public expenditure on the commercial sector would require technical expertise. This situation is no different from what we see today: experts in monetary policy try to anticipate and then propose actions to address inflationary pressure, usually by adjusting key interest rates. As is the case today, estimating the impact of public expenditures would be a hit-or-miss process, but a necessary one nonetheless. A committee of experts would make an assessment of the amount of public money the commercial sector could absorb without too great a rate of inflation and, correspondingly, the overall level of taxation required. The expert assessment would have no role in determining how much public expenditure there would be or how the required taxes would be applied. That is where the public would come in, debating questions of what amount to spend and whom, what, and how much to tax.

The model of public money and taxation just described reflects how money flowed before the commercial domination of the monetary system. Sovereign rulers issued money in various forms to pay for goods and services and then retrieved the money through taxation. Today, the people should be the sovereign. Under a system of public money, the people would make payments to themselves for goods and services provided for their benefit, then return that money to themselves via taxation. The process could be accomplished entirely without money, but that would be an administrative nightmare.⁶

Effectively exercising the public’s right to create and spend its money would require a wide range of democratic decision-making. Questions about the level of taxes, redistribution of income and wealth, whether to tax resource use or land, which expenditures should be taxed, etc., would need to be democratically determined. However, given the basic income and extensive public services included in the proposal, there would be much less need for the accumulation of wealth or for investment programs such as pensions, which are major drivers of growth. This, in turn, would justify even greater taxes on existing wealth. Moreover, since there would be less need for investment opportunities, public money could be created and used to purchase natural resources and utilities currently in private hands, bringing them back under public control.

Another important focus of democratic participation would be the enhancement of public spending oversight. All organizations that received a direct or indirect allocation of public money would need to have clear mechanisms for democratic accountability and transparency in place. Interested citizens along with workers and user groups would monitor their expenditures and business practices on a regular basis. Such monitoring would minimize the possibility for abuses, such as overleveraging of the financial sector and corruption in the public sector, which have plagued the current system.

Conclusion: Debt-Free Public Money for Sufficiency Provisioning

A public money system would enable a one-step economy in which individuals no longer have to undertake socially or ecologically harmful work in order to secure an income. Participation in the market would no longer be essential, as money would reflect an entitlement to livelihood, not just the market value assigned to work. Paid work would continue, but it would focus on democratically determined priorities. Caring for each other and for the planet and building a just society, not financial speculation and resource extraction, would be recognized as the real sources of wealth. New metrics would track and guide progress, with a shift from Gross Domestic Product to a notion of Gross Domestic Provisioning that measures overall “wellth,” that is, well-being.

In a transition toward an economy that prioritizes provisioning over profit, we must be attuned to the interplay between meeting our own needs and protecting the environment. For example, substantially reducing energy use would have profound effects on domestic work, as the latter would be much harder without labor-saving (but energy-using) devices. Birth control has helped reduce environmental strain by keeping population growth in check. But slower population growth, or even decline, has also led to aging populations with relatively fewer people available for both productive and care work. A major focus of a future provisioning system will, therefore, need to be care for the elderly. Although today this responsibility tends to fall upon the shoulders of women as unpaid or underpaid work, it can become a major source of meaningful work and societal wealth.

Reorganizing the economy around publicly created money is not utopian. It simply requires recognizing and reorienting what has existed in the past and what we, in fact, fall back upon today. In the wake of the financial crisis of 2007/8, the power of public money was made clear when governments used it to rescue the banks and other large businesses, such as auto manufacturers and insurance companies. Let it now be used to provision the people.

Endnotes

1. This essay is based on my book Debt or Democracy: Public Money for Sustainability and Social Justice (London: Pluto, 2015).
2. This essay adopts the feminist notion of “provisioning,” which embraces currently uncosted areas of human need and the resilience of nature. For more on this concept, see Marilyn Power, “Social Provisioning as a Starting Point for Feminist Economics,” Feminist Economics 10, no. 3 (2004).
3. For more information on the social economy, see “Social Economy,” Organisation for Economic Cooperation and Development, 2017, http://www.oecd.org/cfe/leed/social-economy.htm.
4. I refer to this concept and the related myths that the government must “live within its means” as “handbag economics,” as discussed in Debt or Democracy.
5. For more on the solidarity economy, see Peter Utting, “What is Social and Solidarity Economy and Why Does It Matter?” From Poverty to Power (blog), April 29, 2013, https://oxfamblogs.org/fp2p/beyond-the-fringe-realizing-the-potential-of-social-and-solidarity-economy/.
6. The case of the babysitting circle demonstrates the usefulness of money. Every participant does the same task (babysitting) and the group is small (a dozen or so families), but the system is much easier to administer with tokens than with an array of bilateral personal arrangements.

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Mary Mellor, professor emerita at Northumbira University in the UK, wants to change this reality, as she explains in a recent essay, “Money for the People” at the Great Transition Initiative website. Mellor, the author of Debt or Democracy and an expert on the development of alternative economies, writes that we must create new public circuits for money-creation so that we can direct money toward socially and ecologically needed activities, and not just the types of debt-driven loans that banks deem profitable. In other words, money-creation need not be controlled by private creditors in the course of creating debt.

The average citizen knows that banks are too powerful and often predatory, but they may not realize that the state has largely ceded its power to create new money (“seignorage”) to banks. Banks create new money out of thin air when they make loans. That money is not something they otherwise hold in a vault. It is literally created when a loan is approved. That is how banks make profits.

The power to create new money is something that the government could feasibly control and administer itself, for the benefit of all.  But governments have surrendered their power of seignorage to the private banking system and its investors.

This has far-reaching, negative impact because, as Mellor explains, “It is the private, bank-issued money system that leaves us with a pernicious cycle of debt and growth. Money could encourage socially and ecologically sustainable production and consumption, but only if it ceases to be a creature of the market and is reclaimed as a social and public representation of value.”

I highly recommend Mellor’s essay because it deconstructs some of the basic, unquestioned premises of modern banking and money-creation while opening up new vistas for progressive action.  Even Bernie Sanders, Elizabeth Warren and their followers have not gotten their heads around the idea that the public could credibly reclaim its power to create debt-free, socially useful money.  But this would require the creation of new types of public institutions and processes for creating money for public purposes, and avoiding the pitfalls of political capture and inflation.

Mellor writes:

“Neoliberalism, which has influenced so much of the conventional thinking about money, is adamant that the public sector must not create (‘print’) money, and so public expenditure must be limited to what the market can ‘afford.’ Money, in this view, is a limited resource that the market ensures will be used efficiently. Is public money, then, a pipe dream? No, for the financial crisis and the response to it undermined this neoliberal dogma. The financial sector mismanaged its role as a source of money so badly that the state had to step in and provide unlimited monetary backing to rescue it. The creation of money out of thin air by public authorities revealed the inherently political nature of money. But why, then, was the power to create money ceded to the private sector in the first place—and with so little public accountability? And if money can be created to serve the banks, why not to benefit people and the environment?”

In other writings, Mellor has pointed out the remarkable fact that “quantitative easing” carried out by the US Government to bail out banks is not regarded as public debt. QE gave away the game. It conspicuously demonstrated that the government itself (and not just banks) could create money out of thin air, and do so without it being considered public debt. The trillions of dollars created to prop up banks following the 2008 financial crisis, after all, was a case of the sovereign state creating debt-free money. (The banks are not going to repay those trillions.)

Mellor insists that “states can and do ‘print money.’ First, it is produced ex nihilo by central banks to provide cash and support for the money-creating activities of the banking sector. Second, money is created and circulated as the government spends, in the same way that banks create money as they lend. States spend money and then offset their expenditures against tax revenue and other income received.”

“All modern currencies are “fiat money,” created out of nothing, their value sustained by public trust and state authority,” write Mellor.  “So why are states and their citizens shackled in debt? Why can’t the people simply create the money they need free of debt? Why can’t that money be circulated in a not-for-profit social or public sector?”

She answers:  “….if money is created and circulated initially by the public sector, then there is no need to ‘raise’ money through taxation. Rather than preceding public expenditure, taxation would follow it, retrieving publicly created money from circulation in amounts sufficient to keep inflation in check. If the public sector is much larger than the private sector, taxes might have to be quite high.”  But these “expenditures” of new money would serve social and environmental needs without having to meet the profit-making criteria of banks.

In the rest of her essay, Mellor outlines how a new public circuit of money could be responsibly administered by new public institutions without creating inflation or resulting in special-interest abuses of the money-creation power (as if that does not already occur right now, via banks!).  She envisions “a shift from profits to provisioning would put the main focus of the economy where it belongs: on the sustainable meeting of needs. That goal would be met through a combination of a basic income (that is, a monetary allocation to each individual as matter of right) and a budget for collective expenditures on public services and infrastructure.”

To work well, a robust democratic process would be needed to ensure an effective form of participatory budgeting and strong oversight of monetary decisionmaking and implementation. But with such a system, money-creation would not just finance “development” that can no longer be sustained by the planet’s finite resources, it could facilitate the provision of economic security and sustainable livelihoods for all.

It’s time for commoners to open up a new debate about the politics of money-creation. The rise of blockchain-ledger software (the engine behind Bitcoin) is already doing this. Digital currencies are showing how voluntary collectives can create their own functional currencies that let communities (and not banks) capture the value that communities create. That represents a potentially huge shift of political power. It’s also time to bring the politics of fiat currency (conventional money) into this discussion, as Mary Mellor’s fascinating essay does.

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Mary Mellor: That’s right there are two magic money trees. Both the state and the banks can create money out of thin air.

States do this by having budgets. Despite the myths that have been told time and time again, states are NOT households – they run armies and banks and schools and police forces and so on. They allocate expenditure in expectation of getting an equivalent amount of money back through taxation. There is no direct connection between public expenditure and public income. There is no state piggy bank or house-keeping allowance.

Public expenditure and income is a constant flow of money and it is only when the totals are totted up that it becomes clear if there is a balance. Deficits are simply evidence that states spend in advance of receiving any income. If they waited until the money rolled in, deficits would never occur.

Despite the claim that states ‘printing’ money is automatically inflationary, this is not the case. What matters is the relationship between state income and expenditure and the condition of the wider economy. The skill is to balance the money created with the money recovered via taxation. In any case, public deficits can be a good thing. They put fresh money into the economy that is then free to circulate.

The other magic money tree is the banking sector. Banks do not simply look after the money in people’s bank accounts and “lend it out”, they actually create money out of thin air by creating new accounts or putting new money into existing accounts – with no democratic accountability.

The neoliberal era saw a massive increase in bank lending (student, consumer, mortgage, financial speculation) with banks becoming the major source of new money in modern economies. The magic money tree of the banks is far more de-stabilising than the magic money tree of the state. Unlike state magic money which can be created free of debt, bank magic money always has to be repaid with interest.

This creates the dilemma that the banks always want more money back than they lend out. Where does the extra money come from? Either extra loans constantly being taken out, or ‘leakage’ of debt free money from the state, that is public deficit. In fact, the use of public money was much more direct following the 2007-8 crisis.

‘Quantitative easing’ – a fancy term for new electronic money from central banks – put billions of pounds, dollars and euros into the banking sector to stave off collapse. This and other rescue measures did little to stimulate the core economy, but made a small elite very rich.

So when we are told social welfare, education, housing, health cannot be afforded because there is no magic money tree, this is a lie. New money is constantly pouring into the hands of the already rich as they gamble and speculate. Ordinary people are burdened with debt as they try to keep their heads above water.

The right of states to directly fund public services (“people’s quantitative easing”), is denied. It is falsely claimed that all new money is ‘made’ by the market sector. This is not true, money is accumulated in the market. It can only be created by states or banks. The claim that all state income comes from taxing the private sector is also false. The public sector also pays taxes – much more reliably than the private sector.

Let us have no more myths about the lack of magic money trees. They do exist – what matters is who owns and controls them. And it should be all of us.

Mary Mellor’s new book Debt or Democracy is available now please click here

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When then-Fed Governor Ben Bernanke gave his famous helicopter money speech to the Japanese in 2002, he was talking about something quite different from the quantitative easing they actually got and other central banks later mimicked. Quoting Milton Friedman, he said the government could reverse a deflation simply by printing money and dropping it from helicopters. A gift of free money with no strings attached, it would find its way into the real economy and trigger the demand needed to power productivity and employment.

What the world got instead was a form of QE in which new money is swapped for assets in the reserve accounts of banks, leaving liquidity trapped on bank balance sheets. Whether manipulating bank reserves can affect the circulating money supply at all is controversial. But if it can, it is only by triggering new borrowing. And today, according to Richard Koo, chief economist at the Nomura Research Institute, individuals and businesses are paying down debt rather than taking out new loans. They are doing this although credit is very “accommodative” (cheap), because they need to rectify their debt-ridden balance sheets in order to stay afloat. Koo calls it a “balance sheet recession.”

As the Bank of England recently acknowledged, the vast majority of the money supply is now created by banks when they make loans. Money is created when loans are made, and it is extinguished when they are paid off. When loan repayment exceeds borrowing, the money supply “deflates” or shrinks. New money then needs to be injected to fill the breach. Currently, the only way to get new money into the economy is for someone to borrow it into existence; and since the private sector is not borrowing, the public sector must, just to replace what has been lost in debt repayment. But government borrowing from the private sector means running up interest charges and hitting deficit limits.

The alternative is to do what governments arguably should have been doing all along: issue the money directly to fund their budgets. Having exhausted other options, some central bankers are now calling for this form of “helicopter money,” which may finally be raining on Japan if not the US.

The Japanese Trial Balloon

Following a sweeping election win announced on July 10th, Prime Minister Shinzo Abe said he may proceed with a JPY10 trillion ($100 billion) stimulus funded by Japan’s first new major debt issuance in four years. The stimulus would include establishing 21st century infrastructure, faster construction of high-speed rail lines, and measures to support domestic demand.

According to Gavyn Davies in the July 17th Financial Times:

Whether or not they choose to admit it – which they will probably resist very hard – the Abe government is on the verge of becoming the first government of a major developed economy to monetise its government debt on a permanent basis since 1945.

. . . The direct financing of a government deficit by the Bank of Japan is illegal, under Article 5 of the Public Finance Act. But it seems that the government may be considering manoeuvres to get round these roadblocks.

Recently, the markets have become excited about the possible issuance of zero coupon perpetual bonds that would be directly purchased by the BoJ, a charade which basically involves the central bank printing money and giving it to the government to spend as it chooses. There would be no buyers of this debt in the open market, but it could presumably sit on the BoJ balance sheet forever at face value.

Bernanke’s role in this maneuver was suggested in a July 14th Bloomberg article, which said:

Ben S. Bernanke, who met Japanese leaders in Tokyo this week, had floated the idea of perpetual bonds during earlier discussions in Washington with one of Prime Minister Shinzo Abe’s key advisers. . . .

He noted that helicopter money — in which the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them — could work as the strongest tool to overcome deflation . . . .

Key is that the bonds can’t be sold and never come due. In QE as done today, the central bank reserves the right to sell the bonds it purchases back into the market, in order to shrink the money supply in the event of a future runaway inflation. But that is not the only way to shrink the money supply. The government can just raise taxes and void out the additional money it collects. And neither tool should be necessary if inflation rates are properly monitored.

The Japanese stock market shot up in anticipation of new monetary stimulus, but it dropped again after the BBC aired an interview with Bank of Japan Governor Haruhiko Kuroda recorded in June. He ruled out the possibility of “helicopter money” – defined on CNBC.com as “essentially printing money and distributing payouts” – since it violated Japanese law. As the Wall Street Journal observed, however, Bernanke’s non-marketable perpetual bonds could still be on the table, as a way to “tiptoe toward helicopter money, while creating a fig leaf of cover to say it isn’t direct monetization.”

Who Should Create the Money Supply, Banks or Governments?

If the Japanese experiment is in play, it could settle a long-standing dispute over whether helicopter money will “reflate” or simply hyperinflate the money supply.

One of the more outspoken critics of the approach is David Stockman, who wrote a scathing blog post on July 14th titled “Helicopter Money – The Biggest Fed Power Grab Yet.” Outraged at the suggestion by Loretta Mester of the Cleveland Fed (whom he calls “clueless”) that helicopter money would be the “next step” if the Fed wanted to be more accommodative, Stockman said:

This is beyond the pale because “helicopter money” isn’t some kind of new wrinkle in monetary policy, at all. It’s an old as the hills rationalization for monetization of the public debt – that is, purchase of government bonds with central bank credit conjured from thin air.

Stockman, however, may be clueless as to where the US dollar comes from. Today, it is all created out of thin air; and most of it is created by private banks when they make loans. Who would we rather have creating the national money supply – a transparent and accountable public entity charged with serving the public interest, or a private corporation solely intent on making profits for its shareholders and executives? We’ve seen the results of the private system: fraud, corruption, speculative bubbles, booms and busts.

Adair Turner, former chairman of the UK Financial Services Authority, is a cautious advocate of helicopter money. He observes:

We have been left with so much debt we can’t just grow our way out of it – we should consider a radical option.

Not that allowing the government to issue money is so radical. It was the innovative system of Benjamin Franklin and the American colonists. Paper scrip represented the government’s IOU for goods and services received. The debt did not have to be repaid in some other currency. The government’s IOU was money. The US dollar is a government IOU backed by the “full faith and credit of the United States.”

The U.S. Constitution gives Congress the power to “coin money [and] regulate the value thereof.” Having the power to regulate the value of its coins, Congress could legally issue trillion dollar coins to pay its debts if it chose. As Congressman Wright Patman noted in 1941:

The Constitution of the United States does not give the banks the power to create money. The Constitution says that Congress shall have the power to create money, but now, under our system, we will sell bonds to commercial banks and obtain credit from those banks. I believe the time will come when people [will] actually blame you and me and everyone else connected with this Congress for sitting idly by and permitting such an idiotic system to continue.

Beating the Banks at Their Own Game

Issuing “zero-coupon non-marketable perpetual bonds with no maturity date” is obviously sleight of hand, a convoluted way of letting the government issue the money it needs in order to do what governments are expected to do. But it is a necessary charade in a system in which the power to create money has been hijacked from governments by a private banking monopoly engaged in its own sleight of hand, euphemistically called “fractional reserve lending.” The modern banking model is a magician’s trick in which banks lend money only a fraction of which they actually have, effectively counterfeiting the rest as deposits on their books when they make loans.

Governments today are blocked from exercising their sovereign power to issue the national money supply by misguided legislation designed to avoid hyperinflation. Legislators steeped in flawed monetarist theory are more comfortable borrowing from banks that create the money on their books than creating it themselves. To satisfy these misinformed legislators and the bank lobbyists holding them in thrall, governments must borrow before they spend; but taxpayers balk at the growing debt and interest burden this borrowing entails. By borrowing from its own central bank with “non-marketable perpetual bonds with no maturity date,” the government can satisfy the demands of all parties.

Critics may disapprove of the helicopter money option, but the market evidently approves. Japanese shares shot up for four consecutive days after Abe announced his new fiscal stimulus program, in the strongest rally since February. As noted in a July 11th ZeroHedge editorial, Japan “has given the world a glimpse of not only how ‘helicopter money’ will look, but also the market’s enthusiastic response, which needless to say is music to the ears of central bankers everywhere.” If the Japanese trial balloon is successful, many more such experiments can be expected globally.

_________

Ellen Brown is an attorney, Founder of the Public Banking Institute, and author of twelve books, including the best-selling Web of Debt. Her latest book, The Public Bank Solution, explores successful public banking models historically and globally. Her 300+ blog articles are at EllenBrown.com. She can be heard biweekly on “It’s Our Money with Ellen Brown” on PRN.FM.

Cross posted from Web of Debt

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