Can Capitalism be More Equitable?

Robert McGarvey
October 7, 2020

I am sure it was not intended, but the Pandemic has exposed a nasty reality: there is no shortage of money. 

Financing individuals and small businesses through this unprecedented shutdown has, of course, been an absolute necessity. And while conservative voices continue to pronounce that we’re burdening our children with unsupportable debts, the reality is quite different. 

Governments have essentially (re) taken monetary control and, employing a variation of quantitative easing, are partnering with central banks to finance the shutdown. Yes, technically, governments are borrowing the money; however in practice they are borrowing the money from themselves, as owners of their money-printing central banks. 

All this was supposed to be impossible. Central banks were designed to be ‘independent’. In theory they sit at the centre of a privatised monetary system that controls new money creation through the commercial banking system. 

Traditionally private banking interests controlled (almost all) new money creation. New money was created every time banks made loans, extended credit lines, issued credit cards etc. Banks provided monetary stability through asset backing and their credit rating capabilities. 

Avoiding nasty inflation was the justification for privatised monetary regimes, and while they worked well, they also limited the options of democratic governments. This arrangement reduced governments’ monetary options to two, raising taxes or selling interest-bearing bonds to finance public spending. 

The first cracks in the old system were exposed in the Financial Crisis of 2008/9, when quantitative easing resources (money created by central banks) were used to bail out the embattled financial system. Many trillions of dollars were employed globally on what was planned as a temporary stopgap measure to stabilise the system. 

Today those resources are being used to support the public, as well as businesses large and small. Will we have to ‘pay back’ the money? Well, considering that the publicly owned central banks created the monetary resources ‘out of thin air’ (basically an accounting entry on their balance sheet), it seems likely that a suitable arrangement will be found. 

This new monetary regime is being called Modern Monetary Theory and it is restoring a sovereign monetary right that was lost (in the Anglo world) at the founding of the Bank of England in 1694.

Is there a role for intangibles in stabilising sovereign monetary regimes?

Productive assets (and not gold, etc.) are the crucial ‘fiscal anchor’ for monetary systems. Productive assets are the ultimate source of commercial value, and as they grow, they encourage growth in the number of exchange transactions, the volume and velocity of which provides the market ‘ballast’ supporting the exchange value of a currency in all economies. 

Intangible assets now dominate our post-industrial economies. The full value of intangibles like commercial software, artificial intelligence algorithms, networks of value (like Facebook), a variety of novel trade secreted business systems and newer relational capital assets like customer equity and social media networks are both underreported in our national statistical data but also providing the silent monetary demand that means we can expand the money supply without inflation.   

Modernising our accounting systems to fully recognise and capitalise intangible assets in corporations but also including publicly owned tangible assets (like the National Health Service) would significantly expand the ‘fiscal anchor’.

Such a system would provide new value sources that would both expand the foundations underpinning the monetary system and - with proper national balance sheets - provide a rational gauge upon which growth in the money supply could be determined. 

It has been hoped that after the Pandemic we will be able to redefine the system in ways that makes capitalism more just, more equitable and more accountable to public purpose. 

Well, monetary reform makes all that possible. In future, ‘austerity’ policies will be reduced to being another political option, not a fiscally determined necessity. 

The financing of public infrastructure will be a technical matter, with new financial resources created by governments to build bridges, roadways, or expand educational options for all, secured by the tangible and intangible asset value created, as required.  

In the words of former U.S. President Abraham Lincoln (an early sovereign monetary innovator), “money will cease to be the master and become the servant of humanity”

Robert McGarvey

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