Democratizing Finance or Democratizing Money?*

• Date: 01 December 2019
• DOI: 10.1177/0032329219878992
• Author: Mary Mellor
• Published date: 01 December 2019
• Subject Matter: Special Issue Articles

https://doi.org/10.1177/0032329219878992

Politics & Society

2019, Vol. 47(4) 635 –650

© The Author(s) 2019

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DOI: 10.1177/0032329219878992

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Special Issue Article

Democratizing Finance

or Democratizing Money?*

Mary Mellor

Northumbria University

Abstract

This article extends the critique of finance to money itself. It argues that our

understanding of money has been distorted by a series of myths about its origin

and nature, in particular, the claim that money emerged from the adoption of

precious metal coinage in market systems. These myths obscure the social and

political history of money and the role of states in money creation and circulation.

Neoliberal ideology, by contrast, adopts a “handbag economics” that treats the

state as a dependent household rather than an economic actor in its own right.

An alternative view of money is put forward that sees money as a social and

political construct and not just a passive reflection of market activity. It is argued

that the sovereign power to create money should be recognized, reclaimed, and

democratized as a public resource.

Keywords

money creation, public spending, bank debt, participatory budgeting, monetary myths

*This article is part of a special issue titled “Democratizing Finance” that includes an introduction,

anchor articles by Robert C. Hockett and Fred Block, and commentaries by William H. Simon,

Lenore Palladino, Mary Mellor, Michael A. McCarthy, and David M. Woodruff. The papers were

originally presented at a workshop held in Madison, Wisconsin, in July 2018 organized by the late Erik

Olin Wright as part of his Real Utopias Project.

Corresponding Author:

Mary Mellor, School of Arts and Social Sciences, Northumbria University, Newcastle upon Tyne, NE1

8ST, UK.

Email: m.mellor@northumbria.ac.uk

878992PASXXX10.1177/0032329219878992Politics & SocietyMellor

research-article2019

636 Politics & Society 47(4)

The proposal to democratize finance by extending the critique of finance to money

demands a radical critique of money.1 This critique is important because of the way

theories of money influence public policy. When the welfare needs of people, or sug-

gestions for new public services or infrastructure, are put forward, they are routinely

met by the politically disabling question, “Where is the money to come from?” This is

a more fundamental question than “How will this be financed?” Finance implies the

reallocation of already existing money. Where that money comes from in the first

place is rarely addressed. Who or what has the power to create and circulate money?

Who controls the money supply?

Hockett’s paper gives us the answer in relation to finance. He carefully builds a

picture of the intricate relation between the banks and the state. The seemingly autono-

mous banking and financial sector is shown clearly to be dependent on state monetary

authority. Block goes on to suggest ways in which finance can be treated more as a

utility administered by not-for-profit structures such as cooperatives, state banks, and

credit unions. Although the development of social and public utility banking is an

important step, money can also be seen as a utility, a public resource2—and, as the

2007–8 crisis showed, a public responsibility.

The claim that public expenditure cannot be afforded because there is no money

is based on a number of myths,3 of which the two key are that money is essentially

scarce and that it is generated exclusively by the market. As will be explained

below, neither is true. Hockett’s article clearly demonstrates that the complex sys-

tem of bank lending and, increasingly, shadow bank lending relies on the backstop

of publicly generated money or, more precisely, publicly generated confidence in

the money system.

Modern theorists of money have challenged the view of money as essentially lim-

ited.4 In place of the mythic image of money’s originating as scarce gold, contempo-

rary theories see it as a social and political construct that can take a variety of forms

and can be represented by as little as a keystroke. Moreover, money is not a passive

actor in economic processes. It is not a mere reflection of underlying economic activ-

ity. Who gets access to money determines who has money with which to invest, con-

sume, or speculate. Such access involves power not only over the circulation of money

but also its creation in the first place. For this reason, although it is important to make

the case for the democratization of finance in relation to public and private credit and

investment, the ability to create and circulate money in the first instance also needs to

be the focus of democratic debate.

This article aims to challenge the mythic assertion of the right of the market to

control the creation and circulation of money and to reclaim money as a public

resource. The case for democratizing money is based on the argument that what

should be the sovereign power to create money has been captured by privatized

finance. Exposing the contradictions of a privatized, bank-led money supply based

on debt, and recognizing that the sovereign power to create money still exists,

could provide a radical response to the claim that there is no money for progressive

social spending.