Debt or Democracy

Issue section: 

This book addresses many popular misconceptions about money and debt. Ninety seven percent of money that circulates within the economy has not actually been created by the state, but by private banks, out of thin air, as fractional reserve loans.

Without the constant rolling-over of this debt-based money, there would be no economy. So GDP growth depends on maintaining high public, corporate and individual debt. This is why any level of austerity is a fraud.

Mellor’s phrase for the utterly dishonest equating of state finance with ordinary family budgeting is “handbag economics”. Householders cannot (legally) create national currency. Governments can and do, either via Bank of England franchised banks or by direct issue of notes and coins, plus quantitative easing (QE).

National currency is already effectively “social and public” and should, therefore, work for the benefit of all, not just the few. Mellor proposes “sufficiency provisioning” with a reformed banking and money system, which is pretty similar to the recently dubbed “People’s QE”.

She gives neoliberal economics a thorough shredding and declares the present monetary system incompatible with democracy.

Mellor’s prose is clear, well structured and lucid in its descriptions of some heavy theory. She takes a position on most issues, but not all.

For example, she recognises there is no essential difference between state-issued money and bank-issued money but then backtracks partly with an unhelpful distinction between public and commercial “money circuits”.

She writes, “An historical view of money shows that the monetary reformers and Modern Monetary Theory (MMT) are both right.” Actually, MMT regards all public spending as creating money. Reform movements such as Positive Money don’t.

She dismisses myths about the barter origins of money and the benefits of the gold standard. And she criticises “transitional” remedies such as local or alternative currencies, which, despite being potentially more democratic and socially progressive, can never simply elbow aside national state currencies. Likewise, an international currency would only work with full financial convergence (see Greece vs the euro!).

Doubtless influenced by the ethos of autonomism, Mellor tries to be nice to everyone. Hence the polite if rather unfair, “Left groups had an analysis of a crisis between labour and capital, and a critique of finance capital, but virtually nothing to say on the problem of public money supply in financialised and privatised monetary systems.”

Politically, Debt or Democracy is smudgy in places. This is a pity because most of Mellor’s conclusions are reasonable and could form the basis of a united front type reform package, rather like the One Million Climate Jobs campaign.

Mellor references a well-chosen selection of authors and Debt or Democracy will surely enhance her reputation as a radical socialist academic.