Money As A Social Construct And Public Good
Ann Pettifor
In a new book, Ann Pettifor explores
money and monetary systems, subjects which have been neglected for far
too long by the academic profession. As long as we remain ignorant of
how monetary systems operate, for so long will the public good that is
money be captured to serve only the interests of the tiny, greedy
minority in possession of private wealth.
Everyone, except an economist, knows what ‘money’ means, and even an economist can describe it in the course of a chapter or so… – A.H. Quiggin
Right now many of us are transfixed by a
new kind of digital money that seems to escape the control of central
bankers: Bitcoin and its new market challenger, Litecoin. There are two
striking things about the ‘money’ that is Bitcoin. First, its creators
(computer programmers) have apparently ensured that there can never be
no more than 21m coins in existence. Bitcoin therefore is like gold: its
value lies in its scarcity. This potential shortage has added to
the currency’s speculative allure, leading to a rise in its value.
However, these rises and falls in value made it unreliable as a means of
exchange.
Second, Bitcoin is not buttressed by any
of the institutions that maintain advanced monetary systems. These
include the rule of law, accountancy and criminal justice systems and
central banks. It is these institutions that (try to) keep us honest. By
contrast Bitcoin’s great attraction is precisely that it bypasses the
state and all regulation. Indeed Bitcoin appears to be based on
distrust. “Bitcoin was conceived as a currency that did not require any
trust between its users” Jonathan Levin wrote recently.
Equally its scarcity means that unlike
the endless and myriad social and economic relationships and
transactions facilitated by credit, Bitcoin’s capacity to generate
economic activity (trade, investment, employment) is limited – to 21
million coins. Like the architects of the gold standard, Bitcoin’s
designers intend to deliberately limit economic activity to 21 million
coins in order, ostensibly, “to prevent inflation”. In reality the
purpose is to ratchet up the scarcity value of Bitcoin most of which are
owned by originators of the scheme.
As this article is published,
speculators have inflated to delirious heights the value of Bitcoin. The
winners will be those who sell – just before the bubble bursts. In the
absence of institutions that reinforce and uphold trust, the losers will
be robbed.
Money is both a many-splendoured but
also a many-layered thing. We all know what it is. We deal with it – in
tangible or intangible form – every day. Most of us think it important.
Not so economists. The dominant economic orthodoxy – taught at every
university to the exclusion of other schools of thought – declines to
take money, banks or debt seriously, as Professor Steve Keen argues.
One prominent economist – whose anonymity we shall protect – once
discouraged a PhD student from majoring in the subject, arguing that the
study of money or credit is “a matter of third order importance.”
As a result of that neglect, those who
control our money system escape close scrutiny. As a result too, there
is widespread public ignorance of how the system for both creating and
pricing money is effectively controlled not by central banks, but by the
commercial banking system and by private, global capital markets.
Despite all the hype around central bank decision-making, the public
authorities have little impact on the management of the global financial
system.
Perhaps one of the most disturbing
aspects of academic neglect of money and monetary systems is the
public’s failure to appreciate that the monetary systems of advanced
economies evolved as a result of great struggles between private wealth
and wider, democratic society. The success of these historic struggles
meant that monetary systems in advanced economies evolved to become a
great public goodserving wider interests. However, periodically
monetary systems are recaptured by the “robber barons” of private
wealth, and then controlled and manipulated to serve their own rapacious
greed.
To shine more light on the subject of
money, and to broaden the discussion to a wider public, I published a
short e-book aimed mainly at students – especially women students and
green campaigners. Its title is Just Money: how society can break the despotic power of finance.
While we all know what money is and
means, there is still a great deal of confusion. In the book I try to
draw out the key differences between economists that rely on the
classical or neo-classical tradition of monetary theory; and those who
take a radically different perspective on credit and money. These
include great economists like the Scot, John Law, John Maynard Keynes,
Joseph Schumpeter, JK Galbraith, contemporary economists like Prof.
Victoria Chick, Dr. Geoff Tily, Prof. Randall Wray, Prof. Steve Keen,
Standard and Poor’s Chief Global Economist, Paul Sheard; anthropologists
like David Graeber; and sociologists like Geoffrey Ingham.
They all understand that the thing we
call money has its original basis in a promise, a social relationship:
credit. The word credit after all, is based on the Latin word credo: I
believe. “I believe you will pay, or repay me for my goods and services,
now or at some point in the future.”
To understand this, think of your credit
card. There is no money in most credit card accounts before a user
begins to spend. All that exists is a social contract with a banker; a
promise made to the banker to repay the debt incurred as a result of
spending on your card, at a certain time in the future, and at an agreed
rate of interest. And when we spend ‘money’ on our credit card, we do
not exchange our card for the products we purchase. This is
because money is not like barter. No, the card stays in our purse.
Instead the credit card, and the trust on which it is based, gives us
the power to purchase a product. It is the means by which we purchase the good.
Your spending on a card is expenditure
created ‘out of thin air.’ The intangible ‘credit’ – nothing more than
the bank’s and the retailer’s belief that you will honour an agreement
to repay – gives you purchasing power.
That is why money and credit is a great
public good. As a result of monetary systems it is wrong to ever suggest
that “there is no money” – for childcare, education, the arts or for
the transformation of the economy away from fossil fuels. The bigger
question is this: is our money system just? And as a public, not private
good, does it serve the needs of wider society?
As long as we remain ignorant of how
monetary systems operate, for so long will the public good that is money
be captured to serve only the interests of the tiny, greedy minority in
possession of private wealth.
This article originally appeared at British Politics and Policy at LSE
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