Neoliberal economics and other fairytales about money | Letters

Politics is not about a struggle over a fixed pot of money, says Mary Mellor, and the best way to end austerity is to reject it as an ideology, says Peter McKenna

Aditya Chakrabortty (It's reckless. But a Tory cash splurge could win an election, 3 July) is right to point out the hypocrisy of the political right about public expenditure. While progressive proposals for public spending are decried as burdening the hard-pressed taxpayer, the right is happy to use public money to rescue the banks or boost their electoral chances.

As I explain in my book Money: Myths, Truths and Alternatives, neoliberal economics is built on a fairytale about money that distorts our view of how a contemporary public money system operates. It is assumed that public spending depends on extracting money from the market and that money (like gold) is always in short supply. Neither is true. Both the market and the state generate money - the market through bank lending and the state through public spending. Both increase the money supply, while bank loan repayments and taxation reduce it. There is no natural shortage of money - which today mainly exists only as data.

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