31 Mar 2024

Public Money to Make Us Independent from the Sad Expectations of the Markets

by Mario Martínez Lorenzo

If tomorrow we started to take seriously the existential challenges facing humanity, global financial markets would collapse, and with dire consequences for all of us. Like it or not, this fictitious world
that reduces everything to numbers greatly influences what we produce, how, where and for whom. Doing without markets and money to coordinate the economic activity of a society may prove to be
a risky and difficult task, but perhaps there is some way for these markets to serve us. We may be tempted to aspire to a cashless society and think that markets are unreformable. I changed my mind
when I discovered that this version of the markets we have is only one among several possible ones, and that it precisely has some fairly simple defects that we could remedy. Without intending to
completely eliminate the problematic sphere of reciprocal exchange inherent in every free market, I think that a practical and immediate goal would be to test some legal and institutional changes that
allowed money to work differently, making it possible for environmental and social priorities to become real in a decentralized manner through fairer markets.

In the financial markets, property rights in companies, debts, insurance, natural resources and all kinds of goods, such as houses or land, are bought and sold. All these assets have value based on the
expectations of profits they may report in the future. The benefits depend on the prices that those who do not have this wealth in property are willing to pay to be able to use it. But the prices of both
these assets and of all the goods and services that are exchanged in society, far from being indicators of an objective value, they are influenced in an unquantifiable way by a huge number of
issues that go beyond production and consumption. Especially by power relations.

When a few companies manage to dominate a market they can impose lower prices on what they buy and higher prices on what they sell, increasing their profit margins without any change on
people’s preferences, productivity or the abundance or scarcity of natural resources. If housing accumulates in the hands of large landlords and investment funds, it becomes very difficult for
people who depend on this basic need for our lives to negotiate fair rental prices. At the end of the day, they have nothing to lose, we stay on the street or go back to our parents’ house. In general with
wages and prices of raw materials, those who are in a situation of extreme need do not have the strength to negotiate fair prices in the markets compared to those who can force the negotiation to
the maximum. Thus the markets end up being co-opted by prices that do not reflect the real conditions of scarcity that delimit production or the social priorities that guide the consumption and distribution of what is produced in an ideal way.

The use of military power and violence are to some extent the historical causes of the extremely unequal distribution of the world’s wealth, which greatly influences what we produce, how, where
and for whom. Most of us work producing things for the rich, things we could not afford ourselves. The world economy is devoted to satisfying the needs of an idle oligarchy that devours the planet’s
resources, plunging us all into social, economic and environmental collapse. But beyond the distribution of wealth arising from more explicit violence means, we find other mechanisms and
invisible structures that perpetuate the unfair distribution of income. Many are internalized belief systems such as patriarchy, materialism or anthropocentrism, others are socially anchored relationships such as marriage, company dinners, private property, money or debt. I will focus on the last two out of the wide complexity of root causes we could imagine.

Already in ancient Sumeria they were aware of the problem that debts have: they create unequal situations of power which perpetuate debts over time. Those who lend the money are in a position
of power compared to those who must return it with interest. From the outset, it should be noted that if the creditors do not spend their money on what the debtors offer, it is impossible for the latter to
meet the interest. If those who lend the money accumulate wealth instead of spending it (after all, if their basic and not-so-basic needs are covered, they can do it) the debts are unpayable and grow
exponentially over time. In Sumeria they had the jubilee every so often where all debts were eliminated, showing that, without a clear mechanism to redistribute wealth forcing it to flow back to the real economy of goods and services, a social fracture of permanent dispossession was produced.

We currently have neither this nor any effective mechanism to limit the destructive potential of debts. On the contrary. Our money is intrinsically tied to debt. The more we get into debt the more
money is created, and if we pay the debts the money disappears. In this way, there is an incentive to increase the general level of indebtedness every time we need to have a greater amount of money in
circulation. But all this borrowing is harmful and largely unnecessary. The debts themselves are not the problem. The problem is when in an unequal world like ours they become essential for those who have less, combined with a money created on the basis of debt by banks and other financial intermediaries and on top of that there is an absence of mechanisms that limit the accumulation of wealth able to redistribute power.

It is undeniable that the majority of transactions today are done digitally. However the only form of public money is cash. When we make transfers or pay with credit card we are using bank money. A
money created by the banks, responsible for the appearance of recurring crises and the consequent forced rescues. After all, if we don’t bail out the banks, all our savings, which are nothing more than
bank promises, would disappear. That is why it is no little change to complement cash with a digital version of it, created by a public authority. On the one hand, having a form of public digital money
allows us an alternative to having money in banks. On the other hand, we can increase its amount without increasing the level of debt and make a socially desirable use of the money created. And
most importantly, we can allow the banks to go bankrupt, thus ceasing to subsidize indiscriminate borrowing through this public bailout insurance that they have at the moment.

Stopping the extraction of income through the payment of interest that is implicit in all prices and through the recurring crises that involve rescues with public money and permanent public aid to the
banking and financial system is a priority objective to restore fair markets. Reducing the overall level of debt and capitalizing society with public money while private debt-money is greatly
reduced can have a huge effect on redistributing power in society. Once we have a physical and digital public money infrastructure we can deal with the unexpected consequences in the amount of
money in circulation that may arise from a reality shock on the fictitious expectations that the markets have about the future. The foreseeable fall in value of all those assets resulting from the
implementation of measures that strengthen the protection of nature, decrease unnecessary consumption and strengthen the bargaining power of global south countries and working class,
would be borne by those who have made fanciful and risky bets on the future of this world. Our money would no longer be held hostage by the financial system and we would be able to finance
everything we consider a priority without any shortage of money nor inflation.

Mario Martínez is the current president of the Spanish association Dinero Positivo. He has created a social currency where he lives and has participated in many others. He writes articles about monetary reform and has a youtube channel called AprenderEconomia21.