Who Controls our Money? The case for public money and against austerity

Mary Mellor introduces the concepts in her new book Debt or Democracy: Public Money for Sustainability and Social Justice, which is published this month.

Debt or Democracy was written to address the current debate about austerity and fiscal Debt of Democracy‘responsibility’. It argues for the necessity of deficit and a thriving public economy, and in doing so, explodes the myths about money that underpin neoliberal ideology. Central to the book is a rejection of the concept of ‘handbag economics’, in other words, that the public sector is analogous to a household, dependent upon external wealth from the private sector. The book challenges handbag economics’ view of money as essentially limited, with all public expenditure presented as either a burden on, or a threat to, private investment and expenditure. Finally, it rejects the idea that the supply of money to the public sector can only originate with the taxpayer or private ‘money markets’.

The book deconstructs mainstream economic presumptions by uncovering neoliberal myths of money as well as mistaken ideas about the origins of money and banking. For example, money did not originate in trade – in fact rulers and public monetary authorities were far more instrumental in the process than conventional economics suggests. Equally, the ‘Janus face’ of central banks obscures this fact by combining the public function of money creation with the commercial role of banker to the banks. The history of public money and central banking reveals two circuits of money in modern economies, one commercial, the other public. Indeed, it is the establishment’s failure to recognise the essential role of the public circuit and the crisis-prone nature of the commercial circuit which lies behind the recent financial crisis.

The privatisation of the public money supply is irrevocably linked to the supply of the public currency and to the supply of bank debt. The current crisis will only be resolved by massive injections of newly-created public money, and, while this was created by central banks out of thin air via ‘quantitative easing’, handbag ideology demanded it only be made available to the banking sector. This public largesse should have been put in the hands of the people to enable public benefit through public infrastructure and services with taxation used to retrieve potentially inflationary money from circulation should the need arise. Debt or Democracy presents a choice between an economy based on debt-free public money, created and circulated for democratically determined social benefit, and the current privatised, crisis-ridden debt-based money supply.

The Unsustainability of Money as Debt

Debt or Democracy rejects the assumption underlying handbag economics of a fixed pool of money contained within a commercial circuit of money which is continually borrowed and repaid. This assumption ignores two important factors: firstly, the ability of banks to create new money, and secondly the need to repay the debt with interest. In reality, money is created as banks make loans which are removed from the circuit as the loan is repaid. Boom and bust occurs when rapid growth in money supply dramatically expands the circuit with equally rapid contraction when credit crunches and crises inevitably emerge. This is when the public money supply comes to the rescue. Therefore, the commercial circuit of money is unsustainable socially, ecologically and economically. Socially, it creates inequality and perverse forms of expenditure. Ecologically it can drive unsustainable growth in the search for profit. Economically it faces the contradiction that the origin of money in loans with interest means that more must be paid back than is lent.

Debt-free Public Money

Despite the claims of neoliberal ideology, Debt or Democracy maintains that a public circuit of money does exist. Public money, as debt-free public currency, can emerge in two ways. Firstly, it is produced ex nihilo by the central bank to provide cash and support for the banking sector. Secondly, money is created and circulated as governments spend in the same way as banks create money as they lend. State expenditure is a continual circuit of spending and taxing in the same way as the commercial circuit creates new loans which are then repaid. The circuit always ends with the money creator, whether bank or state, and only they can re-start the cycle.

Interestingly, how the public circuit of money is viewed depends upon where the circuit is observed. If the starting point is taken as tax this is seen as funding public expenditure. If, however, the expenditure is viewed first, tax can be seen as retrieving that expenditure. Deficits or surpluses only become evident when the two sides of the circuit are accounted, therefore how any deficit is treated then becomes a political decision. Debt or Democracy maintains that both deficit and debt are products of political ideology and historical circumstance. Through a historical survey of the emergence of modern money, and particularly the role of central banks, the origin and ideological nature of sovereign debt and deficit is exposed.

The Democratisation of Money

The democratic potential of money has been largely ignored. Commentators from the left and right have instead focussed on the ‘real economy’ which is generally taken to be the capitalist productive sector. Money is seen as a secondary aspect, whereas it should be seen as an active politically constructed agent. The creation and circulation of money as a public resource can give people access to goods and services in a democratised public economy. A public supply of currency would prioritise socially necessary expenditure, with the commercial sector playing a secondary role based on real investment.

Recognition of the public nature of money reveals that its functioning and operation cannot be treated as a privatised commercial artefact or a technical matter. It is fundamentally a democratic issue. There needs to be a public debate about how money creation should be organised. Debt or Democracy sets out a democratic process for a publicly administered public money supply that would avoid centralisation and maximise participation. The creation of both public and commercial money needs to be transparent and accountable.

Debt-free Public Money for Sufficiency Provisioning

What would be the outcome of a reorganised economy? Democratically administered public money could achieve ‘sufficiency provisioning’ – where we would be ecologically sustainable and egalitarian as sufficiency means no-one has too little or too much. Provisioning embraces what is currently unpaid work. The search for profit and labour through employment would not be the main access to provisioning. Money would not just represent work done, but would be an entitlement to livelihood. Security of needs-led provisioning could allow people to adopt less employment-intensive and consumer-intensive life-styles. This does not mean there would be no paid work, but people would be mainly engaged on democratically determined priorities.

As the primary source of debt-free public currency, Debt or Democracy sees public provisioning as the main creator of wealth in the community, providing work, goods and services as the means of well-being. The private sector would rely on the secondary circulation of publicly created money into a (socially and environmentally regulated) market. Sufficiency provisioning would also require a different way to reflect and measure provisioning activities. It requires that Gross Domestic Product would be replaced by Gross Domestic Provisioning as a measure of overall well-being.

There remains the critical political question of who controls the creation and circulation of the public currency. All money is socially and publicly constructed – there is nothing ‘natural’ about money. All modern currencies consist of ‘fiat money’, which is created out of nothing and sustained by social trust and public authority. Debt or Democracy argues that modern money is an amalgam of public and private monetary structures under which the public power to create money has been privatised. Put in Marxist terms, the monetary power once monopolised by rulers has passed to the capitalist sector. That power needs to be reclaimed and passed to the people. This is not a utopian demand. It is not asserting what could or should exist, it is about recognising and re-orienting what does exist. The power of public money has been made clear through its use to rescue the banks, let it now be used to provision the people.’


Mary Mellor is Emeritus Professor at Northumbria University, where she was founding Chair of the University’s Sustainable Cities Research Institute. She has published extensively on alternative economics integrating socialist, feminist and green perspectives. Her books include The Future of Money: From Financial Crisis to Public Resource (Pluto, 2010).


Debt or Democracy: Public Money for Sustainability and Social Justice is available to buy from Pluto Press here.

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