To bring global capital back onshore would be transformational of the global monetary order. Only then could we hope to restore stability, prosperity and social justice to a polarised and dangerously unequal world. Only then could we hope to manage the challenge of climate change.

[...] As Michael Hudson writes, 'the financial sector's aim is not to minimize the cost of roads, electric power, transportation, water or education, but to maximize what can be charged as monopoly rent.'

However, the power of private, commercial bankers to create and distribute finance at a ‘price’ (the rate of interest) they themselves determine is a great power. It is bestowed and backed by public infrastructure (the central bank, the legal system and the system of public taxation). It is a power that must therefore be carefully and rigorously regulated by publicly accountable institutions if it is not to become ‘despotic’. The authorities should ensure that finance or credit is deployed fairly, at sustainable rates of interest, for sound, affordable economic activity, and not for risky and often systemically dangerous speculation. Above all, the great power bestowed on banks by society – the power to create money ‘out of thin air’ – should not be used for their own self-enrichment. Nor should banks use retail customer deposits or loans as collateral for the bank’s own borrowing and speculation. That much is common sense, and should inform a democratic society’s regulatory oversight of the banks.

Furthermore, because neoclassical economists conceive of money as having (like gold or silver) a scarcity value, they theorise as if money is subject to market forces, as if money’s ‘price’ – the rate of interest – is a consequence of the supply of and demand for money. Many argue that like commodities, money or savings can become scarce.

But money is not like a commodity, and to define it as such is to create a ‘false commodity’ as Karl Polanyi argued. On the contrary, with the development of sound monetary systems in developed economies, there is never a shortage of money for society’s most important needs. Instead the relevant question is: who controls the creation of money? And to what end is money created?

A small group of distinguished economists all understood that money as part of a developed monetary system is not, and never has taken the form of a commodity. Instead money and the rate of interest are both social constructs: social relationships and social arrangements based primarily and ultimately on trust. The thing we call money has its original basis in belief. Credit is a word based on the Latin word credo: I believe. ‘I believe you will pay, or repay me now or at some point in the future.’ Money and its ‘price’ – the rate of interest – became the measure of that trust and/or promise. Or, if trust is absent, the measure of a lack of trust. If the banker does not fully trust a customer to repay, they will demand more as collateral or in interest payments.

Central to Keynes’s theory is an understanding of bank money not just as a means of creating purchasing power for the purposes of exchange, but also as a store of value. When, after borrowing and investing, the holder of borrowed money makes profits or capital gains, she will face decisions about what to do with her surplus. Keynes argued that, like other holders of capital, her decision about where to place and for how long to hold her savings is determined first by a need for cash, for immediate or near-immediate use in purchasing goods and services (i.e. short-term ‘liquidity’); second, by what he called the precautionary motive: the desire for security as to the future equivalent of her cash; and third, by the speculative motive: the desire to secure gains by investing the money in projects and knowing better than the market what the future will bring.

[...] The outcome of low yields on government bonds is the massive inflation of property prices [...]

The progressive ‘euthanasia of the rentier’ was for Keynes the price society paid for securing full employment, decent public goods and services, and economic stability. Given that the rentier was hardly likely to engineer his or her own demise, then the assertion of public authority over the financial system was essential.

And if, during a boom, the demand for loans expands beyond the capacity of the economy – in other words, clients apply for and bankers create too much credit, which is then used to chase too few goods, services and speculative assets – the money supply expands. In this case, excessive borrowing and credit creation is likely to have an inflationary impact. If money is lent or borrowed at high real rates of interest, then it does indeed quickly become unpayable debt.

Equally, its scarcity means that, unlike the endless and myriad social and economic relationships created by credit, the capacity of bitcoin to generate economic activity is limited (to 21 million coins). The currency’s architects deliberately limited the amount of bitcoins in order ostensibly to prevent inflation. In reality, the purpose is to ratchet up the value of bitcoins, most of which are owned by originators of the scheme.

In this sense, bitcoin miners are no different from goldbugs talking up the value of of a finite quantity of gold, from tulip growers talking up the price of rare tulips in the seventeenth century, or from Bernard Madoff talking up his fraudulent Ponzi scheme.