Money: Myths, Truths and Alternatives
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This Conversation piece article is based on Mary Mellor’s new book Money: Myths, Truths and Alternatives, to be published by Policy Press on July 3 2019.
She covers some of the same ground David Graeber covered in his, Debt: The First 5,000 Years, about the early origins of money which Adam reviewed in a Standard article, Debt, Money and Marx.
But she appears to make some howlers. For instance,
“In the same way that banks can conjure money out of thin air to make loans, states can conjure money out of thin air to fund public spending. Banks create money by setting up bank accounts, states create money by allocating budgets.”
I can’t get in to reply on Conversation and get some clarification of this point. I may be misreading her in any case.
Perhaps it is a forthcoming book for us to review.
Just got round to listening to the 25-minute podcast interview with her on her book and you’re right it is based on Graeber and also on so-called “Modern Monetary Theory” (MMT). I see from her CV that he claims to be a “socialist”. That’s odd. But then Graeber claims to be an anarchist.
In fact, as a collection of all the myths about banking and money in one book, it may be worth reviewing. She should certainly be sent a copy of our pamphlet on banking.
While she’s is wrong about banks being able to, as she puts it in the interview, “rustle up money out of thin air”, the state can do this. She argues that it should to finance all sorts of useful public services. The trouble is that, while the state can issue more money-tokens, it has no control over their purchasing power. That is decided by the needs of the economy. If MMT were ever to be tried (just issuing money to finance government spending) the result would be massive inflation, i.e the tokens would come to be massively depreciated, disrupting the whole economy and defeating the original purpose of providing better public services.
Our problem isn’t capitalism – it is the banking system we have
Wall Street Beware: The Public Banking Movement Is Coming for You
“…What makes public banks different from traditional banks is that they are actually accountable to the public — they’re democratic. So the public can not only decide what services the bank provides and where their taxpayer dollars are invested, but they also have a say in what kinds of investments are off limits…”
A “democratically controlled” bank would be in the same position as workers cooperatives. As it would be operating within the context of capitalism it would have to operate according to capitalism’s rules, i.e. to cover costs and more (even none of the “more” went to shareholders).
This means that those running the bank, however chosen, would have to seek money from savers and investors. To do this they would have offer to pay some interest as their bank would be competing with other banks (even if these too were “public”) and savings institutions. In choosing what do with the money they had succeeded in attracting, they will have to lend it a rate of interest that will bring in enough money to cover their running costs and an element to pay interest to their depositors. Otherwise they would either go bankrupt straightaway or gradually as they lost depositors to other banks. The point is that it doesn’t matter how those running the bank are chosen; they would have run the bank on the same principle as existing banks of borrowing money at one rate of interest and re-lending it at a higher rate.
There is another aspect. Many of those advocating this banking reform believe that banks can create money to lend from thin air. If put in charge of a bank, they would discover very quickly that this is not the case, but if they chose to ignore this and began to make loans of more than the money they had they would bankrupt the bank in double quick time , When the borrowers began to spend the money they’d been lent there wouldn’t be enough money for all of them. Their cheques would bounce or there wouldn’t be enough money to transfer to the bank of those they had bought something from. Those who had deposited money with them would lose it and the members of the “democratic board” would be done for fraud or at least criminal negligence.
So (pending the establishment of socialism and the abolition of money, banks and banking) you wouldn’t catch me putting my savings or having my pension paid into one of these banks. I’d prefer to stick with one or more of the existing banks which at least have some knowledge of how a bank is supposed to operate. While capitalism lasts, better the devil you know than the devil you don’t.
As Marx shrewdly observed, while no banking reform can make things better, a bad banking reform can make things worse:
“Ignorant and confused banking laws, such as those of 1844-5, may intensify the monetary crisis. But no bank legislation can abolish crises themselves.”(Capital, Volume 3, Chapter 30, Penguin Books edition, p. 621.)
The lesson: Don’t try to make capitalism work on non-capitalist lines, you’ll only make things worse. End capitalism, not try to mend it.
Ellen Brown once again advocating state-owned banking as a economic panacea.
Democrats Can Have Their Progressive Policies and Pay for Them Too
“…The government can generate the money it needs simply by creating it on the books of its own banks…money simply created with computer keystrokes…”
Sounds familiar but she is discussing central banks which do have the power to create money. However, she argues that the supposed inflationary effects have been avoided…sort of by some variation of QE policies
“…Japan’s M2 money supply has not even doubled in 20 years, while the U.S. money supply has grown by 300%; and Japan’s inflation rate remains stubbornly below the Bank of Japan’s 2% target. Abe’s stimulus programs have not driven up prices. In fact, deflation remains a greater concern than inflation in Japan, despite unprecedented debt monetization by its central bank…the Bank of Japan’s unprecedented program of monetary easing had provided easy credit for corporate restructuring without generating inflation….”
Of course, i’m lost when it comes to any deeper analysis of her arguments
I AM for reforms and palliative measures until we can replace capitalism and public banking is a good one. Yes, they all hit the limits of operating in a (militant) capitalist system as ALB wrote.
I AM for reforms and palliative measures until we can replace capitalism and public banking is a good one. Yes, they all hit the limits of operating in a (militant) capitalist system as ALB wrote.
Hi Admice
If you go back in history to the late 19th/early 20th century there was a controversy raging at this time within the German SDP over reform and revolution with the revisionists led by Bernstein arguing that revolution was in effect no longer necessary since capitalism was in the process of transforming itself. Rosa Luxemburg and others opposed this position
Criticising, Bernstein’s fellow revisionist, Konrad Schmidt, for his suggestion that the appetite for reform “grows with the eating,” and will ultimately end up in the socialist transformation of society as a consequence of an” apparently mechanical movement”, Luxemburg sought instead to emphasise the importance of the subjective factor in this socialist transformation. It was not true, she contended, that “socialism will arise automatically from the daily struggle of the working class”. Rather, it was the growing awareness of the “very insufficiency of capitalist reforms” that would help produce this outcome
I am not to clear where you would position yourself in this debate but speaking for myself, I cannot quite see how you can propose to both mend capitalism and capitalism. The one thing surely has to be at the expense of the other. If the reforms you have in mind run up against the limits of capitalism how does this transmute into the desire to overthrow capitalism. If anything I would have thought it just leads to a feeling of disillusionment and helplessness
Sorry, I should have said “I cannot quite see how you can propose to both mend capitalism and end capitalism”.
REDACTED TONIGHT on RT today, throughout the day, Saturday Aug. 3rd: PROFIT inhibits mutual aid and co-operation. Lee Camp’s show coming to London this summer.
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