Book review:

The Future of Money

From Financial Crisis to Public Resource

by Mary Mellor

The ‘Credit Crisis’ has awoken growing interest in the nature of money and the need to make fundamental changes, and has led to a flood of books and articles on the subject. Few, however, really go the root of the current problems: the progressive take-over by private interests, over the last several centuries, and especially since the ‘deregulation’ of the banks in the early 1980s, of the function of money-creation. This, with its consequences, is covered in some detail by Mary Mellor.

Her critique is from an ‘eco-feminist’ perspective, but – or perhaps, so – is well argued, with copious references.

A welcome point is that while dealing with the technicalities involved and quoting academics and other writers extensively, she is careful to explain the terms involved in plain English, making it easily understood to the general reader.

Her book draws together many telling statistics to show how the system has been exploited, essentially by unprincipled gamblers, drawing the wealth up from the producers to a small elite, at an increasing rate, using the opportunities created by the banks’ credit-creating power to borrow huge sums for brief periods. Derivatives, hedge funds and speculation in foreign exchange markets have mushroomed since ‘deregulation’ of the banks in the early 1980s and the ending of fixed exchange rates, which facilitated the ‘globalisation’ of finance, escaping national regulation.

She makes clear the fundamental instability of the system, and its dependence on the state to bail it out when, as now, it falls into difficulties, yet its operators claim it to be a better system than government-issue of our money. They successfully made this false claim when the European Central Bank (ECB) was established, and was given independence from the governments involved – as well as placing severe restrictions on government borrowing, or budget deficits.

She notes the proliferation of alternative/complementary/local currencies in the 1930s depression, and the states’ action to outlaw them as threatening to the banks’ monopoly; and their decline once the depression ended, with the outbreak of WW2. They also started and spread in the 1970-80s, but mostly were short-lived. (Omitted is reference to the Swiss WIR system, which has been thriving since 1930.)

She makes clear the need of the system for continual growth of debt, in order to ‘service’ already-existing debts and avoid ‘recession’, ‘depression’, or total collapse – as is now threatening, due to the unmanageable size of the total of debts. I question, however, her reasoning about this: that ‘capitalism’ must expand or die because ‘profit’ is ‘extracted from the circuit of production and exchange’. ‘Profit’ is the income of the proprietors of businesses; only any re-invested portion is unavailable for current consumer-purchases, while the current spending on capital, of earlier set-aside profits, helps to balance ‘the circuit of production and exchange’. Interest-charges – to ‘service’ already-existing debts – are a much more significant and growing problem.

As Galbraith famously stated, “The study of money, above all other fields in economics, is the one in which complexity is used to disguise truth or to evade truth, not to reveal it.” A recent example of this is the issue of ‘Quantitative Easing’. Mary accepts the common claim that this is ‘money creation’ by the government, but notes that ‘media commentators [refer to] the problem of debt that was being foisted on future generations’. I have found no unambiguous description of what is involved, but it seems clear that it has involved the massive growth of the National Debt.

Making Money Public

Having shown the disastrous nature of the present system of money creation, she discusses the possibility of returning money issue to public control, and using it ‘directly by the state and local authorities for necessary public expenditure social benefit’, noting that this ‘need not mean making it subject to state control’. She envisages it being ‘made available to cooperatives, mutuals or other types of social businesses …’ or to provide citizens’ incomes and/or pensions. She notes the ‘Huber and Robertson’ proposal of monetary authorities operationally independent of the government.

Having noted these ‘Huber and Robertson proposals’ (in their book, available on line, ‘Creating New Money’), which would make all national ‘legal tender’ money issued by the bank of England, to be credited to the Treasury for the government to spend it into circulation, she then writes of ‘Not-for-profit banks … creating money through loans’. With the ‘Huber and Robertson proposals’ in place, banks and other institutions would still be able to make loans, but only from their stock of money deposited in ‘savings’ accounts or from their own money. This would not amount to ‘money creation’.

Given this change, once all the loans made before the change had been paid off, there should be enough money in circulation to meet government’s need for revenue from taxation or user-fees as well as for the buying and selling of current production, for savings, and for needed investments. Other changes are needed, including bank regulation and changes in taxation policy, but the money-in-circulation should be what is often claimed for it now: a neutral medium-of-exchange.

One final small point I would like to make, which I find applies to much of the debate on this subject, is the description of the ‘credit-money’ the banks create as ‘debt’. This confuses the issue; when they make a loan, they create both a credit and a debt. The credit is then spent, as money, while the (interest-bearing) debt remains with the borrower until repaid. This is the root cause of the ever-growing levels of debt over recent history. The author is not consistent on this point, in places referring to ‘credit, as debt’ or to ‘debt-money’ and in others, more correctly, to ‘debt-based money’.

– Brian Leslie