Here’s a very good talk given by Mary Mellor in Jan 26th 2012 which provides a great overview of her book The Future of Money.
The first part of the talk deals with the limits of orthodox economic thinking and why it failed to foresee the disaster of the latest financial crisis, but she also outlines alternative views which challenge and fill in the gaps ignored by those with the unitary fixation of “economic man” and efficient market theory.
Her focus though is on the social construction of money and how the ability to create money has only recently been ceded to banks. The 90% of the world’s money supply created by banks through loans can only exist because it is backed by the state. But the privatization of the creation of the money supply has meant that the proper provisioning of society is ignored in the interests of profit seeking. Since the financial crisis began, however, the ability of the state to create money has been taken back by governments through quantitative easing, commonly referred to as the ability to print money. The problem has been that this new printed money was not directed to sustaining society’s needs but in order, the governments claimed, to get the banks to provide credit to consumers. The result was that because of the ongoing crisis they simply sat on it, with the benefits of the move accumulating to the wealthy.
The talk is about an hour long.
The following quote is taken from Chapter 1: What is Money?
For social theories of money the actual money-stuff that represents the accounting process is not important as long as people trust it. Whatever value money is given, it represents a credit or claim on the future production of society. Rather than being secured by some inherent value of the money-stuff itself, the social theory of money sees it as ‘a socially (including politically) constructed promise…money is always an abstract claim or credit’ (Ingham 2004:198). For Ingham ‘moneyness’ is provided by whatever is agreed as the ‘money of account’, that is the means of calculating the relative value of goods, services, debts or taxes. Holding money is a claim on society and all money is therefore a credit that can command resources based on whatever value it carries at any point in time (Wray 2004:234). The social view of money sees it as a system of credit-debt relations that is socially created and maintained. Money is a credit for those who holdit as it is a claim on future consumption or investment. At the same time it is a debt on those who have to provide the goodsor services demanded when the holders present their money.They must give up a service or a product for what is effectively a credit note:
‘All money is debt in so far as issuers promise to accept their own money for any debt payment by any bearer of money’ (Ingham 2004:198 [italics in the original]).
For money tofunction effectively, whoever circulates money tokens in societymust honour them by accepting them in payment, or guarantee them as a means of access to goods and services. While the money system can be seen as a network of claims and obligations, for money to be universally acceptable it has to be given social credibility through respected authorities or institutions. Socially constructed money can emerge in many contexts, but modern money was built from an intricate relationship between the emerging capitalist market and the state (Knapp 1924, Ingham 2004, Wray 2004, Smithin 2009).
While on the topic it is also worth listening to this podcast interview with L.Randall Wray, cited by Mellor in the quote above. Wray is the author of Understanding Modern Money, and the forthcoming Modern Money Theory which is based on the Modern Monetary Theory Primer, a series of posts he and others have written on modern money in the New Economic Perspectives blog.
The interview covers the origins of money, the nature of government debt and the problems with the Euro.