The Issues


The current money system transfers a massive amount of wealth from the general public to the banks, essentially as a backdoor subsidy. This significantly and needlessly increases economic and political inequality.

Inequality and Our Monetary System

Inequality, both economically and politically, has become a central problem of today’s world. There are a variety of important factors contributing to the levels of inequality that we see today; but a significant one, which is underappreciated in our public discourse, is in the design of our monetary system. The current monetary system, in which banks and other financial institutions create much of the money supply when they make loans, contributes to the transfer of wealth from the general public to the banks via interest payments. Further, the current monetary system intentionally creates unemployment by raising interest rates when unemployment gets “too low,” ostensibly to prevent accelerating inflation. By maintaining a stock of unemployed workers, the monetary system undermines the bargaining power of labor and keeps wages depressed for all workers. The promotion of inequality is built into the design of our monetary system.

A job guarantee would establish a floor under wages and benefits and absorb the stock of unemployed workers who in the current system serve to keep wages depressed. These features would reduce inequality not only for workers employed in the job guarantee program, but for workers across the board.

When banks create money, they essentially allocate public funds because the value of the money they create is undergirded by public supports such as deposit insurance. Because of this, interest earned by allocating public funds on the banks’ private behalf should be understood as a subsidy. Due to our systemic failure to adequately exercise our public power of money creation, we leave ourselves unnecessarily reliant on bank money creation to furnish our economy with the money supply that facilitates our economic activity. As a result, we end up taking on more loans and paying more in interest to the banks than if we created more of our money supply through public spending. Utilizing public spending, people would be more likely to earn the money they need to pay their bills rather than having to borrow it. This implicit subsidy we pay to the banks should include interest payments on artificially necessary private debt, even if the loans are otherwise in the public interest. This transfer of wealth significantly and needlessly increases economic and political inequality.

Over-Reliance on Bank Lending Is A Choice

It is important to recognize that it is a choice of systemic design for us to rely so heavily on bank lending to furnish the economy with a money supply. While access to credit should be a public priority to a point, it should also be a public priority to minimize our reliance on private borrowing. Unlike public spending, private borrowing, as a form of money creation, is inherently extractive as it needs to be paid back with interest over and over again if it is to sustain the money supply. In contrast, money created through public spending is simply spent into circulation by the government, hopefully on legitimately public interest uses. Once this money is spent into circulation it can continue to circulate indefinitely, thereby serving as a stable and interest-free money supply that doesn’t need to be paid back to anyone.

With a job guarantee, we aim to correct our over-reliance on bank lending to create our money supply by ensuring that a larger portion of the money supply is created through public spending on job guarantee labor. In addition to this, by restricting the private allocation of public funds to public interest uses, we would further reduce the portion of our money supply contributing to the transfer of wealth to the financial sector. One of the virtues of a job guarantee is that to the extent that curtailing the private allocation of public funds would slow the economy, this would only trigger countervailing stimulus through increased public money creation to fund the job guarantee program.