Most people don’t really understand how money is created and what political choices are embedded in that process. As a result, the privatization of money-creation is largely invisible to public view, and the anti-social, anti-ecological effects of privately created, debt-based money go unchallenged.
Mary Mellor, professor emerita at Northumbira University in the UK, wants to change this reality, as she explains in a recent essay, “Money for the People,” at the Great Transition Initiative website. Mellor, the author of Debt or Democracy and an expert on the development of alternative economies, writes that we must create new public circuits for money-creation so that we can direct money toward socially and ecologically needed activities, and not just the types of debt-driven loans that banks deem profitable. In other words, money-creation need not be controlled by private creditors in the course of creating debt.
The average citizen knows that banks are too powerful and often predatory, but they may not realize that the state has largely ceded its power to create new money ("seignorage") to banks. Banks create new money out of thin air when they make loans. That money is not something they otherwise hold in a vault. It is literally created when a loan is approved. That is how banks make profits.
The power to create new money is something that the government could feasibly control and administer itself, for the benefit of all. But governments have surrendered their power of seignorage to the private banking system and its investors.
This has far-reaching, negative impact because, as Mellor explains, “It is the private, bank-issued money system that leaves us with a pernicious cycle of debt and growth. Money could encourage socially and ecologically sustainable production and consumption, but only if it ceases to be a creature of the market and is reclaimed as a social and public representation of value.”