While reading today, a couple of observations jumped off the page that relate to the social significance of sovereign currency (or ‘modern money’). One was contained in a passage of the The Great Transformation by Karl Polanyi. The other was expressed by David Graeber in an article in the Guardian. Thanks to Tom Hickey and Matt Franko for drawing my attention to Graeber’s article.
The first observation of note came in a passage from The Great Transformation. On page 71, Polanyi holds that in all social systems prior to the industrial revolution, “the economic order is merely a function of the social, in which it is contained”. In contrast, the failed, roughly century-long attempt, during early capitalism, to establish a purely self-regulating market economy “demand[ed] nothing less than the institutional separation of society into an economic and political sphere”. For this to occur, society had to be subordinated to the requirements of a market economy:
A market economy must comprise all elements of industry, including labor, land, and money. (emphasis added)
The inclusion of money in this sentence is striking. Not only must labor power and nature (‘land’) be subjected to the logic of the self-regulating market economy, but money must also be subordinated to its requirements. In reference to this list of fictitious commodities – labor, land, and money – Polanyi adds the following parenthetical remark:
In a market economy the last [i.e. money] also is an essential element of industrial life and its inclusion in the market mechanism has, as we will see, far-reaching institutional consequences.
Here, of course, Polanyi is referring to the gold standard. In an earlier post Taxation, Money, Freedom and Economy, it is argued that the gold standard can be interpreted as an attempt to compel governments to behave in accordance with the ‘logic of capital‘. In Polanyi’s terms, this attempt to restrict the behavior of democratically elected governments through its money-creating function was an attempt to subordinate society to the requirements of a market economy.
In thinking about what is necessary to transcend capitalism, an implication of Polanyi’s argument is that it is not just a matter of eliminating wage labor (the commodification of labor power) and the market-driven destruction of nature but also important to reformulate money in such a way as to make it independent of the imperatives of capital and the profit motive. For society to reassert its autonomy requires money to be under society’s direction rather than dictated by the market mechanism.
Among the consequences of the gold standard were an extreme volatility in economic outcomes and terrible hardship for many. Even the softer form of commodity-backed money under Bretton Woods, though accommodating significant fiscal measures and considerably smoother economic performance, nonetheless broke down. Although less extreme than the gold standard, Bretton Woods still represented an attempt to tie money creation in some respect to the logic of capital. Currently, we are seeing the ramifications of a more recent attempt in the eurozone to tie money creation to the logic of capital.
All such attempts seem doomed to fail. The underlying reason for this is that capitalism is inherently unstable. Therefore, anything that is tied to its internal logic (such as a commodity-backed monetary system) will also be unstable. The solution is for society to refuse to be subordinated to the logic of capital. As a society we need to reassert our autonomy and ensure that economic arrangements are functional to our needs, not the reverse. That requires a monetary system – if money is retained at all – that is responsive to the needs of the community as a whole, rather than one that is run along strictly for-profit lines.
Without such a reformulation of money, attempts to reassert the autonomy of societies over their economies are likely to be unsuccessful. For example, the failed attempt to establish a pure market economy informed post-war efforts to regulate markets, redistribute income and improve macroeconomic performance. Yet, these measures were ultimately hampered by the commodity-backed monetary system, especially in trade-deficit nations. One or the other had to fall. In the end, it was Bretton Woods.
Sovereign currency, if run under a floating exchange rate, offers significant policy freedom in this respect. It was argued in the post ‘Taxation, Money, Freedom and Economy’ (linked to above) that:
Sovereign currencies seem especially conducive to the democratic selection of paths that are neither purely capitalistic nor purely socialistic. The fact that a currency-issuing government faces no revenue constraint means that societies who have established such governments can do things that capitalists would never do following the narrow dictates of profit. The result is something other than pure capitalism. And the more things we do that ignore the logic of capital and the profit motive, the less like capitalism the system will become.
Despite the greater policy freedom offered by sovereign currency, governments have not made use of the potential. To the contrary, they have engaged in neoliberal propaganda since the breakdown of Bretton Woods, pushing the line that government is financially constrained, like a household, and that responsible policy entails austerity, and whenever possible, fiscal surpluses. The fact that this neoliberal policy prescription has only been applied to programs important to the majority while being routinely ignored when it comes to military adventurism and tax cuts for the wealthy strongly suggests that the neoliberal rhetoric does not reflect a lack of understanding on the part of politicians as much as it indicates whose political interests politicians currently intend to serve. The intensity of the propaganda drive of the last thirty-five years actually reinforces the view that governments do understand the democratic potential of sovereign currency and are hellbent on concealing this potential from electorates:
The failed attempts throughout the nineteenth and twentieth centuries to maintain commodity-backed monetary systems, culminating in the breakdown in 1971 of Bretton Woods and the re-adoption in most countries of sovereign currencies, actually represented a significant concession on the part of the elites. It was a concession forced by the inability of capitalism to resolve its own internal contradictions other than through crises and war. Just as the gold standard had collapsed in wartime, the death knell of Bretton Woods was Nixon’s refusal to honor gold convertibility during the Vietnam War. The tendency toward crisis and war is still with us, but sovereign currency has opened up a real possibility for positive change, and capitalists and capitalist governments appear to know it, and it unsettles them.
None of this is to argue that sovereign currency is the answer to everything. It is merely to suggest that it offers social possibilities that are unavailable, or at least unsustainable, under a gold standard or commodity-backed money system.
Further, sovereign currencies seem to offer a path to a post-capitalist society:
Sovereign currencies allow us to express our democratically determined collective desire independently of what capitalists demand. If this is so, the first true half-step away from capitalism may already have occurred without us realizing it. And because we haven’t realized it, we haven’t completed that first step. Many of us have sovereign currencies, but we haven’t made full use of them.
The ideal society may not involve money at all. And moving toward such an ideal society may well require additional steps involving more democratic forms of money than we possess at present. Even so, we have not even scratched the surface of what is possible, in terms of economic democracy, with our current form of sovereign currency. In principle, in a sovereign currency system there is tremendous scope for economic activity run along lines other than the profit motive and the logic of capital, to the extent that we deem this to be appropriate. But right now governments are not serving the interests of general populations – our interests – and most of them do not appear to be interested in doing so. The only way this will change is for us to put our collective foot down. We have to exert massive pressure from below.
The second noteworthy observation was articulated by David Graeber:
Money has always been a particular problem for revolutionaries and anti-capitalists. What will money look like “after the revolution”? How will it function? Will it exist at all? It’s hard to answer the question if you don’t know what money actually is. Proposing to eliminate it entirely seems utopian and naïve. Suggesting money will still exist sounds as though one is admitting to the inevitability of some kind of market. (emphasis added)
It is Graeber’s reference to the utopianism of suggesting an immediate break to a post-capitalist society without money that is striking, because it is here that the democratic possibilities latent in sovereign currencies are so relevant. For this reason, the post quoted earlier went on to argue that:
[sovereign currency] may offer a non-utopian path to socialism. The path is non-utopian because the starting point is grounded in the existing system, and is therefore concrete and understandable. Sovereign currencies have re-emerged after a failed attempt to chain society to a mere commodity (gold), in response to otherwise irresolvable crises endemic to capitalism, and offer a different logic. If we follow this different logic – which enables true independence of some activities from capital’s logic, rather than a strained separation of those activities, with capital always encroaching, always exerting pressure to conform to its demands – attempts at social cooperation may have a firmer footing. If we get a taste for this, we may want more of it. Capital might whither away slowly, or abruptly. But even if the process were only gradual, the qualitative change would be significant. To the extent that capital survived for a time, it would be on our terms, not its own.
Capital, to the extent it remained, would operate on our terms because we would have recognized that sovereign currency is logically prior to capital, and would act in such a way as to assert the priority of society over the economy. Sovereign currency could then be put to democratically determined uses, unconstrained by the logic of capital.
The re-emergence of sovereign currency systems was not the preferred option of capitalists or capitalist governments. It came only after the failure to maintain a gold standard, and the subsequent failure to maintain a watered down version of the gold standard in Bretton Woods. Even after this, the Europeans have groped around for some alternative more suitable to capitalists than the horrifying prospect (to capitalists) of democratically elected national governments issuing their own sovereign currencies in accordance with the will of their electorates. As with the earlier anti-democratic missions, the eurozone project has run into difficulties. But as long as general populations accept the neoliberal rhetoric, these difficulties will merely be used to justify more austerity, more assaults on organized labor and more dismantling of the welfare state.
We need to recognize what’s possible with sovereign currency – complete that first step away from pure capitalism – and exert our collective will through democratic means.