Debt and the Pandemic

Quakers have long supported programs and policies to prevent or reduce poverty and programs to address climate change and environmental degradation. Some Friends also have concerns about the effects of deficit spending by the government. These two legitimate concerns are in tension with one another. Currently, this tension is reflected nationally in the reluctance of U.S. Congress to appropriate the funds needed to fully address the economic consequences of the COVID-19 pandemic and to seriously address problems such as climate change, infrastructure, and education.

There is a way to resolve this tension. Congress can appropriate and spend what is needed for the pandemic and these other needs without additional debt or unacceptably large tax increases. It can do so by issuing money, as it is directed to do in Article 1, Section 8 of the U.S. Constitution, instead of borrowing.

Images of money being printed by the U.S. Bureau of Engraving and Printing lead to the idea that the government creates money. However, printed money now makes up only a small fraction of the total money supply, estimated at about 5 percent. Most of our money is account money, existing only as account entries—as numbers in computers. With account money we get paid by employers. With account money we buy things on credit or by check. All account money is created by banks as they make loans. The history of money creation has been one of competition between banks, or their equivalents, and governments. The Federal Reserve Act of 1913 formalized the outsourcing of money creation in the United States to private banks. 

In the past, however, government creation of money has been essential for the survival of the country. The colonies created their own money to facilitate trade among the colonists when money from Europe was hard to come by. Government-created money got us through the Revolutionary War (the continentals) and the Civil War (the greenbacks). I believe that the greatest threats to the country now are the pandemic and climate change; neither can be addressed by military powers. Government creation of money can be used to address these threats and serve the real needs of the people in this time of crisis.

People worry that government creation of money will cause inflation by increasing the money supply. The current sharp rise in the money supply, mediated by the banking sector, has arisen in parallel with the government’s need to borrow. But the money supply goes up whether the new money is created by either the government or the banking system. It is important to avoid hyperinflation, but many banking experts agree that inflation is not something we need to worry about under present circumstances. 

Bank creation of money concentrates wealth and creates debt. It does so by lending to those with good credit ratings who already have money, and by collecting interest on every dollar in circulation. 

Government spending of new money, in contrast, disperses wealth without creating debt. It supports the country’s physical and social infrastructure, which creates an anti-poverty effect benefiting everyone. Many Black leaders over the years, including Martin Luther King Jr., have emphasized that if the problem of poverty is not solved, racism and its consequences will never be overcome. 

By issuing new money, the federal government can address the pandemic, climate change, and the country’s physical and social infrastructure needs. Several well-intended bills have recently been introduced into Congress to address current needs, including bills to promote public banking and to initiate a postal banking system. These have the benefit of directing profits from banking to the public sector, but they do not change the way money is created. A bill introduced last April by Representative Rashida Tlaib of eastern Michigan would pay for pandemic assistance by having the U.S. Mint create two or more trillion-dollar coins to be deposited in the government’s account at the Federal Reserve. The account balance would be used to fund public assistance needed during the pandemic. The bill takes advantage of the fact that the federal government currently creates money in the form of coins. 

What would make more sense is to restore the government’s authority to create money in all forms, including account money. A bill to do that was introduced into Congress in 2011 as the National Emergency Employment Defense (NEED) Act; it failed to gain any co-supporters. It warrants reconsideration. A proposal from the Alliance for Just Money (monetaryalliance.org) is currently asking Congress to establish a National Monetary Commission of Inquiry to re-examine our system of money creation in the light of history and of current needs. I encourage Friends Committee on National Legislation to take up consideration of these issues.