Mar 19th, 2012 by Ben
These drafts have come out of reading Mary Mellor’s The Future of Money (2010).
Mellor argues that the privatisation of the money circuit - that is, the privatization of what was from the 1930s onwards provided by one arm of the State (central bank*) to another (central government) but which is now once again the preserve of private banks who charge interest to provide this service - lies at the heart of what is going on today.**
Banks produce money not as credit (which is what central banks do, backed up by fully-functioning states) but as loans. They have private control over what was once a public utility. In essence, it is no different to privatizing water, or housing, or health or education.
The value that money holds is a representation of the dynamics of the social relations it inhabits - money starts off as credit and ends up as money when it comes back to central government via taxation, having passed through and interacted with actual human social relations via the money circuit.
Money as we commonly understand it, that is, as a store of wealth, only achieves that position once the circuit is complete. What starts off as credit is valorised by this movement through society, as part of the dynamic of social relations. Money is able to be used as money through a mixture of trust and authority within the dynamics of those social relations.
In the diagram above, central government is able to target where a sizable proportion of credit goes - while in the diagram below, it is private institutions that target where it goes - and in the world we live in where a lot of it goes is into asset price speculation. The credit goes from paper to paper. It is not valorised in the same way as above as it has not encountered actual social relations and social dynamics. It is not representative of the world we live in - it is just credit searching for value within the life of other credit.
The problem is that asset-price speculation bleeds over into the real economy, despite the fact that it is not representative of the dynamics of that economy.
This led to hyper-inflation in asset-price over the past fifteen years - most notably in residential and commercial property.
It was not seen as hyper-inflation for one simple reason: asset-price is not seen as inflationary.
Inflation, as measured by the ECB and the Irish Central Bank, is based on consumer-price, not asset-price.
[*Central banks can be private as well as public entities, but they’re still a pivot point of the State.]
[**This did not happen in Ireland. The Central Bank wasn’t given effective central bank powers until 1971, and the currency didn’t break from sterling until 1979. Twenty years later it joined the Euro.]