6 Billion Ways: When did we become obsessed with monetary policy?
I’m at the “Six Billon Ways” conference this weekend, which is organised by the main NGOs campaigning for global justice – this is my thoughts on the first discussion – and a broader frustration with some of the discussion this movement is having about the financial crisis…
I only caught the end of the 6 Billion Ways workshop “the history of money”. But I have to admit, it wound me up a little, for two reasons. The first is that it talked about fractional reserve banking. As Ann Pettifor puts it, “there is no such thing as fractional reserve banking”. If banks called in all of their loans, then they could pay back all of their debts. It is true that, because we give the money we borrow from banks back to those banks, they can lend those pounds out again. But that doesn’t mean money – deposits – is just created out of thin air.
But that wasn’t my main objection. My main disagreement with the analysis given in the conclusion of this workshop was that it blamed the credit crunch on the way that the money supply was removed from the gold standard in the 1970s. Or, more specifically, it blames the way that the economy became overly financialised – that too much of our wealth was focussed in derivatives and other financial products – on specific policies about how we organise our money supply.
And I think this is wrong for 2 reasons. First, I think it’s wrong because it, for me, it misunderstands what went wrong. David Harvie’s analysis is much more compelling for me. Harvie argues that the credit crunch happened because of a broader crisis of capitalism – specifically, he tells us that capitalism is supposed to work on the theory that the surplus capital – extra wealth – created by our work is then re-invested in socially useful things: new inventions, new companies, new ideas. But this is hard. Building things or inventing things are tricky. It is much easier – particularly in the short term – to make money out of money. And so our surplus capital, controlled by the mega-rich, was invested not in things which are useful for society, but in making money out of money – in gambling on derivative markets.
Or look at what’s happened in people’s lives. In the USA, real wages haven’t gone up since the 1970s. In the UK, they have stagnated as the wealth in our economy has increasingly been distributed through shares (disproportionately to the already wealthy) and decreasingly through wages. As most people’s wages stagnated, but the mega-rich got much richer, pressure to allow credit increased – the iron fist that was keeping everyone poor was cushioned with a velvet glove of credit.
Ultimately what went wrong was not that some men in sharp suits somewhere made a tactical mistake when deciding how to organise our money supply. What went wrong was what has always gone wrong in the economy: a small group of very powerful people managed to secure an economic system which made them wealthier in the short term.
And this leads to my second objection. If we go around talking to people about a specific technocratic failure in the way some clever men organised the money supply, then we misunderstand what political economy is about. It is easy to believe that the way we organise our society is based on evidence and argument. But the truth is that society is organised around the competing interests of different groups in society. And so what we need to do is not try to persuade a few clever men to change our money supply system, but organise our power to force control of the economy from an elite. And that, surely, is a much more compelling, and a much more empowering message.
So, please, let’s stop talking about the money supply – it does need reform, but it isn’t why our economy was destroyed. And let’s start talking about what really went wrong with our economy – we handed it to an elite of bankers, and hoped that they would create real wealth for us all. And we failed to understand tht it is we, all of us, who create wealth, and it is we, all of us, who should contol that wealth.