I highly recommend Mellor’s essay because it deconstructs some of the basic, unquestioned premises of modern banking and money-creation while opening up new vistas for progressive action. Even Bernie Sanders, Elizabeth Warren and their followers have not gotten their heads around the idea that the public could credibly reclaim its power to create debt-free, socially useful money. But this would require the creation of new types of public institutions and processes for creating money for public purposes, and avoiding the pitfalls of political capture and inflation.

Mellor writes:

“Neoliberalism, which has influenced so much of the conventional thinking about money, is adamant that the public sector must not create (‘print’) money, and so public expenditure must be limited to what the market can ‘afford.’ Money, in this view, is a limited resource that the market ensures will be used efficiently. Is public money, then, a pipe dream? No, for the financial crisis and the response to it undermined this neoliberal dogma. The financial sector mismanaged its role as a source of money so badly that the state had to step in and provide unlimited monetary backing to rescue it. The creation of money out of thin air by public authorities revealed the inherently political nature of money. But why, then, was the power to create money ceded to the private sector in the first place—and with so little public accountability? And if money can be created to serve the banks, why not to benefit people and the environment?”

In other writings, Mellor has pointed out the remarkable fact that “quantitative easing” carried out by the US Government to bail out banks is not regarded as public debt. QE gave away the game. It conspicuously demonstrated that the government itself (and not just banks) could create money out of thin air, and do so without it being considered public debt. The trillions of dollars created to prop up banks following the 2008 financial crisis, after all, was a case of the sovereign state creating debt-free money. (The banks are not going to repay those trillions.)

Mellor insists that “states can and do ‘print money.’ First, it is produced ex nihilo by central banks to provide cash and support for the money-creating activities of the banking sector. Second, money is created and circulated as the government spends, in the same way that banks create money as they lend. States spend money and then offset their expenditures against tax revenue and other income received.”

“All modern currencies are “fiat money,” created out of nothing, their value sustained by public trust and state authority," write Mellor. "So why are states and their citizens shackled in debt? Why can’t the people simply create the money they need free of debt? Why can’t that money be circulated in a not-for-profit social or public sector?"

She answer: “….if money is created and circulated initially by the public sector, then there is no need to ‘raise’ money through taxation. Rather than preceding public expenditure, taxation would follow it, retrieving publicly created money from circulation in amounts sufficient to keep inflation in check. If the public sector is much larger than the private sector, taxes might have to be quite high.” But these "expenditures" of new money would serve social and environmental needs without having to meet the profit-making criteria of banks.

In the rest of her essay, Mellor outlines how a new public circuit of money could be responsibly administered by new public institutions without creating inflation or resulting in special-interest abuses of the money-creation power (as if that does not already occur right now, via banks!). She envisions “a shift from profits to provisioning would put the main focus of the economy where it belongs: on the sustainable meeting of needs. That goal would be met through a combination of a basic income (that is, a monetary allocation to each individual as matter of right) and a budget for collective expenditures on public services and infrastructure.”

To work well, a robust democratic process would be needed to ensure an effective form of participatory budgeting and strong oversight of monetary decisionmaking and implementation. But with such a system, money-creation would not just finance “development” that can no longer be sustained by the planet’s finite resources, it could facilitate the provision of economic security and sustainable livelihoods for all.

It’s time for commoners to open up a new debate about the politics of money-creation. The rise of blockchain-ledger software (the engine behind Bitcoin) is already doing this. Digital currencies are showing how voluntary collectives can create their own functional currencies that let communities (and not banks) capture the value that communities create. That represents a potentially huge shift of political power. It’s also time to bring the politics of fiat currency (conventional money) into this discussion, as Mary Mellor's fascinating essay does.