Book review:
Brett Scott has a very varied background, ranging from the extremes of libertarian/anarchist, environmentalist to finacial ‘insider’ and derivatives broker – and now, an activist in promoting ‘alternative finance inovation’.
Given this wide experience, he is clearly well-informed about the details of how the various aspects of the financial world work and interact, and his book debates, promotes and advises on ways of ‘hacking’ the system, as he terms it – using it in creative ways which challenge it – and other alternatives which reduce dependence on it, in anticipation of further breakdown.
He outlines the ideas of a range of critics and designers of alternative/complementary currencies, which offer some hope of mitigating the worst effects of the continuing breakdown of the current system. He writes that “[t]he problems of finance stem from blockages of power - entrenched financial regimes – which weaken the system to the detriment of others. These stagnant regimes – exemplified in the actions of mainstream investment banks and funds – are sources of vulnerabilities.”
However, I must question his grasp of the important fundamental difference in effect between a money supply created by private commercial banks and issued into circulation accompanied by an initially matching, but interest-bearing debt, while supporting and encouraging the growth of the ‘shadow banking’ sector, gambling with the bulk of this money at the expense of the productive economy and the ‘99%’ of the population; as compared with one created by the state on behalf of its citizens and spent into circulation, so remaining in circulation, without any debt attached, and so also without a growing burden of interest, and matched in volume with society’s need for a medium of exchange.
He is aware of the ‘fractional reserve’ system the banks use to create money, but not, apparently, that ‘loans create deposits’, rather than the common view that ‘deposits create loans’, and that, since the bank deregulation of the 1980s, banks’ ‘fractional reserves’ are now near-zero. This has caused a massive inflation of the money supply and, due to their lending preferences, a house-price buble which finally burst in 2007/8.
He knows of the proposal of many ‘monetary reformists’ to end the banks’ power of ‘fractional reserve’ money-creation, citing Positive Money, but has failed to understand the fundamental importance of their critique, and the destructive effect of the usury built into the system. In discussing this proposal, he fails to realise that once a government has done the initial spending to put the money into circulation, it would have no control over its circulation, and once it had fully paid off all the outstanding debts resulting from the current system, there would be little need for further borrowing, and adequate savings to fund this, without any role for government in this. He asks “Can a national community collectively decide, via a government, where money is steered, and do so more productively than a banking oligopoly?” The role of government, after such a reform, should be, not direction of the small amount of lending still needed, but influencing the economy by shifting taxes from public ‘goods’ – e.g. income earned in productive work – onto public ‘bads’ – e.g. private claims on the ‘commons’ of nature, such as land ownership and mineral extraction. Also needed is distribution of Citizens’ Incomes, to end the ‘need’ for ‘full employment’ and allow a restructuring of the economy to meet real needs, instead of the current destructively wasteful policy of ‘planned obsolescence’.