Solvency – Inequality

The first radical option is to introduce sovereign money and a social dividend (Huber 2017). We must recall that allowing banks to create the vast majority of new money as debt is not a natural phenomenon, but a historical creation born of class and power relations that date back to the creation of the Bank of England (Di Muzio and Robbins 2016, p. 38ff). As a historical creation, this means we can create a new institution that serves the public better than current arrangements, while there are various proposals of how to organize sovereign money; at its base, it denies the power of commercial banks to create new money through legislation and empowers a quasi-independent public bank to issue new money as interest free credit to governments, businesses and individuals. Such a public body would still have to monitor for inflationary tendencies through a consumer price index, but would have a number of benefits for alleviating the worse scourges of poverty and inequality and may even promote worthwhile social and environmental goals. First, sovereign money would mean that governments do not have to borrow to spend on meaningful public projects that would be proposed during the election cycle. This would mean an end to deficits, the national debt and the bond market. Political parties vying for power will have to convince the democratic public of their spending priorities and, once elected, the quasi-independent public bank can issue interest-free credit to the treasury based on the government’s political mandate and budget. This has the further benefit of lessening taxes on everybody, leaving more income and wealth in the pockets of the people. Taxes can still be used to incentivize beneficial economic activities (e.g., renewable energy, sustainable agriculture, public transport) and disincentivize those activities deemed socially harmful (e.g., smoking, sugary meals, excessive fossil fuel use). Thus, taxation would be used as a social policy tool, not as a primary revenue generator. Second, national priorities should be set for how the quasi-independent public bank should issue credit to private businesses. This can include environmental and social goals such as the promotion of renewable energy, the production of sustainable and durable goods, increased regional resilience through the promotion of sustainable farming and agriculture, the creation of more public space for leisure and the provision of affordable public housing, to name just a few worthwhile goals. One chief benefit of business not going into debt is that the cost of interest will not be pushed on to consumers in the price of goods and services, thus reducing rather than inflating prices. Either way, crediting businesses should pass some sort of democratically decided test based on the relative merits of the projects for the public and future generations. Third, if we keep the capitalist accounting system of cost-plus-profit, we know that there will not be enough purchasing power in the economy to meet the outstanding prices of goods and services on the market. To overcome this structural gap, the quasi-independent public bank should issue a social dividend to all citizens of a certain democratically decided age.9 The monetary value of this credit should be tied to the productivity of the economy and will mean that citizens will not have to take on debt or save for the future to realize a reasonable standard of living. People can and will still work for an income and be able to save money, but the social dividend will likely mean that they will work at more meaningful jobs and can have more leisure time. Moreover, less work might help alleviate environmental stress and will drastically lessen economic inequality and eliminate poverty. Indeed, at a democratically decided age, individuals will be permitted to legally retire should they wish and receive a state credit that keeps them at a respectable standard of living.