At present too few of us understand the financial system well enough to know how to reform it, even though, as J.K. Galbraith once remarked, ‘the process by which the banks create money is so simple, the mind is repelled’. But after the events of the last few years all of us can appreciate that the creation of credit is fraught with the potential for abuse. And even a brief examination of the historical record shows that privately owned banks have repeatedly jeopardised the common wealth by exploiting the arcane power of debt creation. Finance should be subject to a prolonged inquiry by the population organized as publics to determine whether and how it should be reformed. Perhaps they will conclude that the central banks in Britain and the United States should only give money to state institutions, either as loans or transfers, as circumstances dictate. State-owned development banks could fund industrial expansion in particular regions and sectors and defined publics would exercise responsible control over their activities. Private banks could continue to take deposits from private investors and use them to make loans. But they would no longer have access to the state’s capacity to generate near limitless credit; they would no longer be able to create bubbles in asset markets; they would no longer need to be bailed out by taxpayers who do not understand and are required to believe, the fate of the sucker through the ages.
Of course a public system of credit might lead to reckless cronyism or bureaucratic torpor. But the current system already does. Employee-owned companies might become unjust and sclerotic. But the corporations they would replace already are. Once generally distributed knowledge can provide the basis for legislation the people might still decide that the current structure of the private sector cannot be improved without unacceptable risks. Or they might decide to abolish private property and try to create a world without exploitation. My own hope is that they will move to democratise the workplace and the system of credit in the context of a steady shift from private opulence to public justice.
The Return of the Public, 2010