Any society must undertake economic activities, which are embedded within social systems, to generate the flow of goods and services to provide for the material means of life, including the provisioning of money. The economic ideology of money as a “neutral” medium of exchange obfuscates the sociopolitical nature of the monetary provisioning system. In contrast, we ground our analysis in the understanding of money as a social relation, and we apply the lens of social provisioning to the monetary system. This view makes clear that the monetary system is embedded within, and reinforces, existing hierarchies and power structures and evolves through processes of political contestation. First, our analysis traces how changes in the monetary system have shaped the institutional structures of early capitalism such that the monetary system was seemingly depoliticized. Second, we apply this historical analysis to generate a deeper understanding of current monetary contestations. We apply a discourse analysis of the European Union’s fiscal rules to reflect these debates. The monetary system as it has taken shape through the financial crisis of 2007–2008 and the COVID-19 pandemic has brought the political nature of money back into the public imaginary. Accordingly, we highlight the role and power of the state as guarantor of the functioning of the monetary system. A full acknowledgement of this governmental capacity could create renewed space for monetary contestations and democratization. Our analysis reveals that these are both necessary elements to ensure the financing and macroeconomic stability of a social-ecological transformation.
Finance
Credit guidance was used extensively in the post-war period. The policy helped states build up their industrial capacity, expand their welfare systems, and accelerate technological innovation in key sectors where rapid development was needed. It is a central pillar of any successful industrial policy framework. And with the ecological crisis, it is gaining renewed attention: A recent report produced by the University College London’s Institute for Innovation and Public Purpose shows how credit guidance can be used to accelerate an effective green transition.
This approach can also be used to offset inflationary pressure. In a scenario where we need to increase public investment in necessary social projects—such as health care, housing, and transit—credit controls can be used to reduce commercial investments elsewhere in the economy (again, specifically in damaging and unnecessary industries that we need to scale down), thus regulating aggregate demand. This is a much more rational strategy for inflation control than using broad-brush interest-rate policy, which can have a devastating impact on people’s livelihoods and on socially important sectors.
Wielding the power of credit, commercial banks get to determine the allocation of investment and therefore determine what gets produced. They make these decisions based on whatever production is most profitable, regardless of whether it is beneficial or destructive. As a result, we get massive investment in things like fossil fuels, beef and SUVs, because these things are highly profitable to capital, and chronic underinvestment in necessary sectors like renewable energy, regenerative agriculture and public transit, because these are less profitable or not profitable at all.
This dynamic is what explains the fact that high-income countries – like the United States and Britain – are characterized by extremely high levels of resource use and yet still fail to meet many basic human needs. It is because investment is controlled in an undemocratic way, and is totally unaccountable to society.
Credit guidance can help deal with this problem. We need a democratically ratified framework to guide private investment in line with social and ecological objectives rather than just profit maximization. What are our main goals and values as a society? What do we need to accomplish? What forms of production should be increased in order to improve human well-being? What forms of production are destructive and unnecessary and should be scaled down? These questions should be democratically determined and a credit guidance framework should be established accordingly.
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Recent coverage of insurance markets has highlighted the industry’s involvement in the so-called “climate risk doom loop”: looming climate risks and worse disasters are raising the price of insurance for real estate and infrastructure assets, exacerbating their owners’ vulnerability to future disasters and feeding into higher insurance prices in the future―or the withdrawal of insurance coverage altogether.
Rising insurance prices and the credible threat of insurer divestment from higher-risk areas will constrain investment in both homes and businesses across vulnerable communities. Yet more people are moving into higher-risk areas, and some politicians fear backlash if they let insurance companies deny these communities coverage. In response, state leaders in California and Florida have sought to prevent divestment by directing their insurance commissioners to adjust pricing regulations, invite competition in insurance markets, or derisk insurers by imposing disaster-risk fees on all insurance purchasers regardless of risk.
Private investors, meanwhile, believe the insurance industry should follow price signals: if firms can identify the climate risks an assets could face, and investors price those risks into building and maintaining costs, then market actors will invest prudently.
I argue that insurance is a woefully inadequate financial tool for coping with the impacts of climate change. Improving insurance markets does little to address the fact that the core drivers of the “climate risk doom loop” rest in the design of capital markets, which are structured to direct investment away from vulnerable communities when they most need it.