Mary Mellor and Positive Money.

Abstract.     Mary Mellor is a former professor of sociology at Northumbria University who has written three books on money and banking plus numerous articles. Despite that welter of words and detail, she comes to no clear conclusion as to the way forward for the bank system other than to say we need to “democratise” it. While simple folk are doubtless impressed by the word “democratize” it’s near meaningless unless it is spelt out in plenty of detail exactly what is meant by the word, something Mary Mellor fails to do.

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In 2012, Positive Money (which for the last ten years has been the main UK organisation campaigning for a ban on privately issued money)  was presumably under the impression that Mary Mellor was singing from the same hymn sheet as PM, because PM published an article promoting a series of lectures by her. She certainly made much of the deficiencies of the existing bank system, which of course is not hard to do. Plus she criticised “debt encumbered” money (i.e. privately issued money) as opposed to “debt free” money (state issued money). So she certainly appeared to be singing from the same hymn sheet. And indeed I thought till quite recently that she advocated a ban on private money creation, i.e. full reserve banking / Sovereign Money. I should have looked at the small print more closely.

Her book “Debt and Democracy”, published in 2016 makes just one reference to PM, and that was just as part of a list of books she set out, which included Ben Dyson and Andrew Jacksons book “Modernising Money”. I.e. that book contains no specific backing for Positive Money. (Ben Dyson founded PM.)

You’d think that if she was keen on debt free money she would have made a few more references to the main UK organisation that opposes “debt encumbered” money, i.e. Positive Money, wouldn’t you? Moreover, there is no reference in “Debt and Democracy” to three Nobel laureate supporters of Sovereign Money / full reserve banking. That’s Milton Friedman, Maurice Allais and Merton Miller. Nor is there any reference to the fact that one of greatest economists of all time, David Hume, opposed private money creation.

Thus while Mary Mellor spews out a very large number of words on this subject, it’s questionable how much she really knows about it.
 
Then last year, she had an article published by “Ponderwall” entitled “Neoliberalism has tricked us into believing a fairytale about where money comes from.”

Well now the more naïve members of the political left always lap up page after page of material which inveighs against “neoliberalism”, capitalism, wicked evil banksters, etc etc. Dozens of articles of that sort appear every day. In contrast, as soon as you set out some realistic way of reforming the bank system, their eyes glaze over. It’s emotion the above lefties want, not logic, facts, reason or any of that boring stuff.

And there are numerous writers who make a good living from pandering to the latter desire for emotional thrills.

So is Mary Mellor’s material in the latter “pandering” category, is there anything logical and realistic in her proposals? Well I’m afraid to say I think her material falls to rather a large extent in the former “pandering” category.

In the concluding two paragraphs of her Ponderwall she certainly does not say that debt based money should be banned. To quote:

“But it is also important to recognise that the sovereign power to create money is not a solution in itself. Both the state and bank capacity to create money have advantages and disadvantages. Both can be abused. The reckless lending of the banking sector, for example, led to the near meltdown of the American and European monetary and financial system. On the other hand, where countries do not have a developed banking sector, the money supply remains in the hands of the state, with massive room for corruption and mismanagement.”

“The answer must be to subject both forms of monetary creation – bank and state – to democratic accountability. Far from being a technical, commercial instrument, money can be seen as a social and political construct that has immense radical potential. Our ability to harness this is hampered if we do not understand what money is and how it works. Money must become our servant, rather than our master.”

So what exactly does this “democratic accountability” consist of? She doesn’t say. To repeat, “Democratic accountability” is a great, sexy, soothing phrase which fools simple folk.

In any case, both central banks and private banks are already subject to “democratic accountability” to a significant extent. As to central banks, while some of them have a degree of independence, when push really comes to shove, they are controlled by politicians. E.g. the Bank of England consulted the then UK finance minister before embarking on QE.

As for private banks, they are totally incapable of lending unless a myriad of borrowers, small and large, apply for loans. Thus the NATURE of loans is decided by that myriad of borrowers. That seems fairly democratic to me.  Plus as regards the total amount of lending and money creation they do, that is very much under the control of the central bank via interest rate adjustments, and central banks are, as mentioned above, subject to a significant degree of “democratic accountability” (depending on how independent they are).

And I do like Mellor’s sentence which runs “On the other hand, where countries do not have a developed banking sector, the money supply remains in the hands of the state, with massive room for corruption and mismanagement.”

So is she saying that where countries do in fact have a “developed banking sector”, debt based money should be banned? She isn't clear on that.

Plus I completely fail to see why the fact of having a developed banking sector would stop “massive corruption and mismanagement” by government and central bank. Governments can always lean sufficiently hard on central banks to induce central banks to print ludicrous amounts of money so that politicians can spend it with a view to making themselves popular. The UK’s Tory Party finance minister, Anthony Barber, was guilty in the early 1970s of that when he initiated the so called “Barber boom” which was followed (surprise surprise) by the worst bout of inflation for a hundred years – not that I’m saying “Barber’s boom” was the ONLY cause of the subsequent inflation.

In contrast to Mary Mellor’s vague  non-solutions to banking problems, Positive Money’s is a beauty to behold. It is ultra simple: have just the state, i.e. government and central bank issue money. That’s as simple as E=MC2. Plus the latter solution is backed by several Noble laureate economists. I don’t know of any Nobel laureates who back the “democratic accountability” solution.

Incidentally Positive Money itself employs that ghastly word “democratise” unfortunately. But at least Positive Money does much more than simply bandy fashionable words around.

My conclusion is that Positive Money and everyone else can take Mary Mellor’s views with a pinch of salt.