Compeerist economics solves—heterodox economic approaches, democratic input, and AI

Hannes, Professor of Geography at the University of West Georgia. “Reinventing Money’s Role In the Economy.” From Capital to Commons: Exploring the Promise of a World Beyond Capitalism. University of Bristol. Pp 161-165. /LJS

The contemporary capitalist state’s refusal to play a more integral role in the governance of money has not always been a given and continues to be questioned by some unorthodox economists. Probably the most obvious exception to the complete submission to the monetary-banking apparatus is the use of the state’s central bank as a source of free loans to the government. Essentially the central bank can here be used to create money, buy up government bonds, and then, because the bank is beholden to the state, repatriate the interests on the bonds back to the state, in essence providing interest-free lending. This practice has become increasingly relied on in recent times to deal with significant financial crises, for example via so-called ‘quantitative easing’ meant to inject liquidity into the economy by buying government bonds with money created with a few taps on a keyboard. Some economists and monetary activists, however, are making the case that such ‘interest-free’ lending could be made use of more actively to help governments expand their budgets and be less on the hook for interest payments to various, and increasingly foreign, creditors. Canada is often pointed to as an example where the central bank was actively involved in funding the government from the 1930s up to the 1970s, at which point a growing, neoliberal consensus – along with monetarist views on the cause of inflation – led to a disavowal of internal government funding sources. In response, a concerted movement has emerged to rejuvenate the Bank of Canada’s role in supplying internal credit for public programmes and projects, hence releasing the government from its dependency on usurious debt (Ryan, 2018). Beyond the Canadian case, however, there has recently been a significant increase in the development and embrace of a number of even more ‘radical’ heterodox economic theories. In essence, these suggest a monetary rearrangement is possible that would give states direct control over the money supply, thereby circumventing the need for loan intermediaries altogether. In such an instance, the state can create and then release money into the economy directly in pursuit of its policy goals. One popular theory in this vein is that of modern monetary theory (MMT), which puts the state, as opposed to the central bank, in charge of pursuing full employment (Kelton, 2021). Here, in times of high unemployment, the state can use internally created fiat money to generate the stimulus needed for the economy to recover. In other words, the state is empowered to unilaterally spend money into existence, thus establishing a ‘sovereign money’ regime. In this arrangement, taxes and bonds are viewed as mere tools to be used to control the quantity of money; and this, according to MMT, becomes an issue only after full employment has been reached. We should note here that MMT still leaves private banks and debt-based lending in place because, according to its reasoning, these banks would now be primarily at the mercy of state spending, which would become the driver of monetary expansion. It is this unwillingness to challenge fractional reserve banking, however, that has led some to seek even more far-reaching monetary reforms (Zarlenga, 2002; Huber, 2014; 2017). In these proposals, and in line with the thinking of Irving Fisher and the Chicago Plan of 1933, a demand is made that banks can only loan out what they have in their account, thus drastically reducing the growth of the overall money supply. State-issued money, in turn, can be released in various ways, including socalled ‘helicopter money’ made accessible directly to the public, as well as targeted loans and government spending on specific programmes (opening up the compeerist-aligned option, for instance, of funnelling investment towards the pursuit of use-value rather than exchange-value). In such a monetary context, generating funds via the state to address society’s most critical needs, while also overcoming the debt-driven, runaway, and unsustainable growth imperative, suddenly appears like a real possibility. We will consider one specific, albeit hypothetical application of such a sovereign money regime in Chapter 10. Yet, it should also not come as a surprise that most contemporary, mainstream economists tend to scoff at such heterodox positions. When any such notions cross their path, it does not take long before references to Weimarian wheelbarrows full of useless money enters the discussion. The ultimate fear here is a scenario where money is used to demand much more from the economy than the economy can deliver, leading to crippling inflation and ultimately a complete loss of confidence in the currency and the ability to conduct exchanges. While such inflation concerns cannot be dismissed, they must nonetheless also be put into perspective. In the end, there is a complex array of factors, particularly with regard to consumption and production, that come into play in determining inflation. For instance, a society that is highly dependent on a critical commodity that is inelastic in responding to demand, like oil, will be much more susceptible to inflationary pressures. Yet, when supply has the capacity to be more reactive to consumption, any increase in money supply tends to lead to increased economic activity, hence neutralizing inflationary pressures (within obvious limits). Following from this, then, it is also possible to see that the use of sovereign money on ‘non-productive’, use-value focused investments, such as ecosystem service restoration or a universal basic income, can still be monetarily viable. While such initiatives do not appear to add immediate, additional market value (needed to prevent inflation), the money added to the system and used to pay for supplies and labour can still lead to an overall increase in such value over time as this money works its way through the economy – especially if newly unleashed demand is not heavily focused on inelastic goods. Furthermore, in the case of investments aimed at improving apparently non-commodifiable endowments, an increase in market-based value often also ensues with time; for example, replenished ecosystems can lead to all around higher production and the creation of new economic activity, ranging from agriculture on reclaimed land to a boost in (eco)tourism. In short, we should recognize the malleability and longer-term dimensions of economies when worrying about ‘non-productive’ money entering the system. We would, in fact, do well to keep in mind here the millions of so-called ‘bullshit jobs’ within capitalism – identified by David Graeber (2019) to include work in unneeded bureaucracy, advertising, lobbying, and ego stroking – that also fail to directly contribute to an increase in exchange value based goods and services. Indeed, our current economy has been more than capable of absorbing this superfluousness for decades, with no one harping about possible inflationary pressures. In a similar way, then, a state in possession of sovereign money should be able to pursue significant (use-value) investments considered to be ‘gratuitous’ without automatically triggering the collapse of this money’s worth. Still, we would also be imprudent if we completely ignored the impact that the money supply can have on prices. It is therefore incumbent on any state that has embraced a sovereign tender to establish a sound monetary policy that ensures currency issuance is in line with the actual supply of goods and services it denominates. Most fundamentally, and particularly given that economic growth rates are to be significantly reduced, this means states must also find ways to reabsorb much of the money that has been released, thereby taking it out of circulation. To begin, one advantage for the state controlling its own currency is that it has become the primary lender of credit, meaning that any interest collected would essentially entail a decrease as opposed to an increase of the money supply. Next, where additional shrinkage is necessary, along the lines of MMT, a state can resort to targeted taxation/fees and the sale of state-derived goods and services as ways of taking liquidity out of the system. Lastly, and most critically, if any emerging inflationary pressures were detected, the state presiding over a sovereign currency could respond directly by curtailing monetary outflow, which is significantly less tortuous than the predominant reliance today on steadily increasing interest rates. A more radical option worth noting here would be to place a demurrage function on the sovereign currency. Due to its built-in devaluation, the state would hence be absolved from having to retrieve money from the economy. Such a currency would serve primarily as a tool to facilitate exchange and would no longer function as a useful store of value. Yet the challenges in such a move for the state are significant. The subsequent hoarding of certain goods as a way to pursue savings, for instance, would have to be addressed. International trade could also be significantly impacted, as the value of a demurrage currency would likely be quite low due to its fleeting worth. We will return to how a demurrage currency could potentially be adopted by a partner state within a post-capitalist context in Chapter 10, but its viability in the near term is doubtful. Even with sound monetary policies, however, sovereign currencies will likely still face inflationary pressures from time to time just as bank-issued currencies do today. As such, any budgetary ‘belt tightening’ on the part of a state would need to proceed carefully to ensure that the most critical economic interactions remain active. One particularly powerful economic stabilizer in this regard would be a guaranteed income, which, due to the maintenance of basic consumption that it enables, would prevent a precipitous economic retraction in the most critical areas of the economy. The role of a vibrant commons-based sector in helping to weather difficult economic adjustments is also worth noting here. For instance, if the state’s curtailment of money circulation led to a squeeze in household budgets, any ensuing difficulties could be minimized by leaning on the commons, which, if having been fostered and allowed to flourish, would have found some autonomy from the formal economy and its money system. In this way, a family dealing with an income reduced to the UBI could use the commons to access free, cheaper, or bartered goods and services that they previously acquired in the private sector. This household could then reengage the market economy when the opportunity arises, or, as the optimistic compeerist would argue, the experience may lead them to stay and commit to the commons-based economy for good. Given the emphasis on sound monetary management, a final concern that needs to be acknowledged pertains to the ability of the state, which is viewed by many with great suspicion, to effectively execute such responsible stewardship. Critics here point to our deeply imperfect political systems and humanity’s well-established corruptibility. In short, politicians will be tempted to abuse their power over monetary management, pursuing short-term wishful thinking or selfish desires rather than decision making based on objective, detailed analyses and long-term planning. Monetary reformers are cognizant of these concerns, which is why they generally suggest that monetary governance should be left to an independent body of persons committed to act in an informed and nonpartisan way. Most proposals emphasize public input and transparency as well as clear barriers between monetary managers, who determine the money supply, and the executive and legislative branches of government, who then decide on fiscal priorities, that is, how this money should be used. The National Emergency Employment Defense (NEED) Act, a US House bill, is often pointed to here as an example of actual (although dormant) legislation that would establish sovereign money (Kucinich, 2011). In this proposal, the independent body charged with monetary policy would consist of nine members serving sixyear terms, where each member would be appointed by the President and approved by the Senate, but no more than four members could be of the same political party. While such an arrangement could undoubtedly be made even more apolitical and bound by oversight, it is, at least, not a bad starting point. Nonetheless, even if such an independent and accountable monetary governance authority were established, there would remain ample room for internal clashes of opinion regarding policy, which is inevitable when dealing with extremely complex systems entailing many unknowns. This is where emerging technologies could be of significant assistance. As Paul Mason (2016) has argued, it is high time that the incredible capacity to model complexity that we already have at our disposal be actively applied to the realm of economics, which has thus far largely avoided such tools. Indeed, if this modelling potential were to be fully tapped, especially in light of its growing power via the use of big data crunching AI systems, it could be possible to establish a relatively clear picture of the current and future impact of any specific release of money, for instance in the form of a UBI or as larger, targeted investments. Given a broadly accepted, transparent, and effective modelling system, like that for projecting hurricane trajectories within meteorology, debate over monetary and fiscal policy could mostly avoid disagreements over the reality of certain processes and outcomes, as these would now be largely understood and acknowledged. Focus could, instead, turn to the imperative question of what we want the economy to do for us, as opposed to the current, obverse emphasis on what we can do for the economy. Importantly, any such data analysis and modelling should also be released to the digital commons, allowing for greater oversight and informed input from civil society and the populace. This is where the onus would fall on compeerists to demand comprehensive and deep analyses that are not limited to using only exchange value as an assessment metric. Indeed, compeerists are of the conviction that any well-rounded, long-term modelling based on big-data and effective AI processing would ultimately validate and bolster their policy positions.