Ann Pettifor: The Monetary Roots of Political Extremism

LONDON—Elon Musk does not know it, but he is indebted to the Geneva School of economists. It was this now largely forgotten group that, combining the Austrian school’s emphasis on free markets with German ordo-liberalism, developed in the 1930s the theory that paved the way for greater private control over the creation, pricing, distribution, and marketing of money. This is the intellectual foundation on which plutocrats like Musk now construct their citadels of wealth and power, at the expense of democracy.

The Geneva School’s contribution to the erosion of democracy was no accident. As Boston University’s Quinn Slobodian has observed, its key members—including Ludwig von Mises, Friedrich von Hayek, and Lionel Robbins—shared a view, later embraced by the Chicago School’s Milton Friedman, that democracy posed a “potential threat to the functioning of the market order,” not least by legitimizing demands for redistribution.

These neoliberal economists thus lobbied for “safeguards” against democracy’s disruptive capacity. They wanted states, laws, and institutions redesigned to minimize public, democratic authority over the economy in order to protect and “encase” private market authority. And, to a significant extent, they got it.

Today, the global financial system is bigger than ever, and many parts of it—especially the “shadow banking” system comprising non-bank financial intermediaries like hedge funds and private-credit firms—operate largely beyond government oversight and regulation. In Frankfurt, London, New York, Shanghai, and Singapore, private actors have the power and freedom to shape huge, mobile, and speculative markets in money, energy, health, food, education, and housing—a kind of global casino where, as with all casinos, the house comes out ahead.

This system is, by design, remote and unaccountable. And the consequences have been predictable: extreme concentration of private wealth, a tightening grip on political influence by wealthy private actors, the degradation of the public sphere, the rise of political extremism, and, with the IPO of Musk’s SpaceX, the (brief) emergence of the world’s first trillionaire.

What Money Is Not

At the intellectual heart of this system is a warped and archaic understanding of money as a scarce commodity. In 1695, John Locke posited that money could be stabilized by tying it to a physical commodity like silver or gold—an arrangement that, as Georgetown University’s Stefan Eich explains, effectively precluded discretionary political meddling in money.

Centuries later, Geneva School advocates embraced this idea of “depoliticized” money. In his 1976 monograph Denationalisation of Money, Hayek argued that the government’s monopoly over money should be abolished. Unemployment, he asserted, arose not from any shortcomings of markets, but from “governments denying enterprise the right to produce good money.” Inflation persisted because of state intervention in currency valuation, and because money was excluded “from itself being regulated by the market process.” Nothing, he concluded, should inhibit the development of a private market in the creation, supply, pricing, and distribution of money.

Democracies were particularly problematic. “A good money, like good law, must operate without regard to the effects that decisions of the issuer will have on known groups or individuals,” he wrote. While a “benevolent dictator might conceivably disregard these effects,” democratic governments, which are “dependent on a number of special interests,” cannot “possibly do so.”

Of course, Hayek’s vision of money as a commodity which must be de-politicized was fundamentally political. Today, its appeal remains far more powerful than is commonly understood—extending far beyond cryptomania. If money is understood as a commodity like lumber or platinum, then it is but one short logical step to the belief that money can be bought and sold in private markets.

But money is not a commodity. It is a social construct. It is a promise to pay, and the credibility of that promise is underpinned and upheld by laws, regulations, and public institutions. Money is, at its core, a credit system, the likes of which have existed for millennia, enabling societies to do more than they could through barter.

As Benjamin Braun of the London School of Economics and Political Science and Daniela Gabor of SOAS University of London explain, there are two main forms of credit-money: the liabilities of the central bank (reserves and cash) and the liabilities of commercial banks (deposits). The “moneyness” of these liabilities depends ultimately on the legal rights and financial backing that the state provides, including direct access to lender-of-last resort liquidity.

The Geneva School’s contemporary exponents distort this arrangement by permitting and encouraging privately arranged, market-based money creation and pricing (interest rates). While the central bank has direct control over the “bank rate,” market rates are, by design, beyond its regulatory oversight. This private power to fix the “price” of money drives up real rates and yields, and encourages private money markets to apply the principles of usury to generate wealth-extracting and debt-inflating credit.

Such “easy” money creation, coupled with high real rates, inevitably drives up the cost of private borrowing. Moreover, the global shift toward inflation targeting in the 1990s caused central banks to account primarily for the interests of creditors in their interest-rate decisions. Partly as a result of this easy but costly money creation public and private debt has surged, reaching an eye-popping $251 trillion in 2024, equivalent to 235% of global GDP, up from roughly 100% in the 1960s. Private debt alone amounts to 143% of global GDP.

Public Give, Private Take

Hayek’s monetary dream finds its fullest expression in the largely unregulated global market in money. As Cornell Law School’s Paul McCulley, formerly a managing director at PIMCO, pointed out in 2009, this “shadow banking” system has contributed to “explosive growth in leverage and liquidity risk outside the purview of the Federal Reserve.” And this market continues to grow. In 2024, it expanded by 9.4%—double the pace of the regulated banking sector—reaching $256.8 trillion, or 51% of global financial assets.

As Braun and Gabor also show, when private financial actors innovate, they create “shadow money”—financial liabilities that fulfill quasi-monetary functions within the financial system, but without (ex ante) state support. Prior to the 2008 global financial crisis, both Bear Stearns and Lehman Brothers created shadow money to fund their rapidly expanding balance sheets. But the creation of new money, Braun and Gabor explain, depends on the daily valuation of the collateral against which the new credit has been created. When private collateral valuation broke down, so did the shadow banks.

Musk has been tapping Wall Street and shadow banks for billions of dollars in loans over the past year to fund the growth of SpaceX, which Bloomberg’s Nir Kaissar describes as a “profitless, non-dividend-paying, one-person-controlled, empire-building project” and the “very definition of a junk stock.” While many have been willing to extend those loans, they have demanded high real interest rates.

Unlike credit-rating companies, the private bond market judges a company’s value by the additional yield it has to pay above US Treasuries with similar maturity. The bonds issued by SpaceX trade at a wider average spread of 1.62 percentage points across maturities. That is larger than BB-rated junk bonds’ average spread of 1.55 percentage points.

As the credit market understands, junk bonds are far more likely to default, which is why many institutional investors such as pension funds, insurers, and government accounts usually won’t hold junk-rated bonds at all. When Musk’s other company, Tesla, almost went bankrupt over 2017-19, its bonds were trading as low as nearly 80 cents on the dollar.

One might expect that, at the very least, these private credit markets face the same discipline as other capitalist enterprises—getting either rewarded or disciplined for risk-taking—and that they do not benefit from public policies and resources. In fact, to mitigate the risks of crises, these private markets remain tethered to publicly backed central banks. Monetary policymakers’ actions, from quantitative easing (QE) to interest-rate cuts, provide a periodic boost to shadow-banking leverage, as Gabor and Copenhagen Business School’s Cornel Ban have shown.

After the global financial crisis, the European Central Bank went out of its way to protect the securitization market by providing collateral, engaging in QE, and lobbying the European Commission and national governments for regulatory easing. The ECB also successfully fended off a proposal by the European Commission for a tax on financial transactions, including shadow banks’ repurchase agreements.

The surplus accumulated by a small but growing number of plutocrats is further bolstered by tax breaks and public subsidies (such as for fossil fuels). It was partly because of the distribution of public financial resources that the combined wealth of America’s billionaires surged by $2.071 trillion (70.3%) during the COVID-19 pandemic (March 2020–October 2021), reaching $5.02 trillion. The wealth of the country’s richest five people at the time—Jeff Bezos, Bill Gates, Mark Zuckerberg, Larry Page, and Musk—increased by 123% during that period.

This trend has only accelerated since then. According to Jasper Boll of the Paris School of Economics, and Emmanuel Saez and Gabriel Zucman of the University of California, Berkeley, the wealth of 250 California billionaires has grown 144% in 2023–25, reaching more than $2 trillion—almost half of California’s annual GDP—at the end of last year. By May 2026, it had grown a further 12.5%, to $2.31 trillion.

Musk is not on this list, as he abandoned California for Texas, a state with no income tax. But, after receiving tens of billions of dollars in US government subsidies and contracts, his net worth reached over $1.4 trillion, though it now hovers around $800 billion.

Imperial Appetites

In their 2020 book Trade Wars Are Class Wars, finance writer Matthew C. Klein and Peking University’s Michael Pettis argue that rising inequality within countries heightens international trade conflicts. Falling wages and real incomes reduce the purchasing power of working people, while raising the level of savings.

The wealthy capture a large chunk of those savings. But, like those that benefited from 19th-century imperialism, today’s wealthiest people cannot spend all the wealth they possess. There are only so many superyachts, private jets, rocket ships, luxury bunkers, and sprawling mansions, let alone non-luxury goods, they can buy. Unable to sell their wares, firms accumulate growing surpluses—a recipe for recession unless foreign market outlets can be found to absorb a country’s excess production and savings.

In the 19th century, these conditions contributed to imperialism, with a focus on countries like Brazil, India, and South Africa. In the 21st, they have helped to propel hyper-globalization, with wealthy actors seeking foreign markets not only to absorb the growing surpluses they control, but also to help increase those surpluses further, such as by shifting production to China and South Asia. Silicon Valley billionaires and US private-equity investors have also found opportunities in Western and Eastern Europe, as well as Latin America—particularly their housing, energy, health-care, and transport markets.

Globalization enabled rapid growth for many developing countries, with 800 million people lifted out of poverty in China alone. But it also fueled trade imbalances, leading to political tensions between surplus and deficit countries. And while hyper-globalization met capital’s needs, it did not account for labor’s well-being. Workers in America’s Rust Belt, for example, endured decades of erosion of their livelihoods before embracing a populist political movement that promised to reverse their fortunes.

They are not alone. In countries as varied as Brazil, Russia, Italy, and India, millions of voters have backed right-wing strongmen (and strongwomen) who vowed to take back control over their economies and protect workers’ job from the international economic system.

But these “saviors” often make matters worse. Nowhere is this more obvious than in the United States, where President Donald Trump promised to protect Americans by cracking down on immigration and erecting tariff barriers to the Mexican, Chinese, and even Canadian markets. Meanwhile, his administration cut taxes on the wealthy and slashed regulations on their speculative and extractive activities. As the richest few gain control over ever-larger surpluses of unspent savings, their appetite for investment and speculation in foreign markets only grows, along with right-wing populism at home.

The combination of extreme domestic inequality and global trade and financial imbalances has produced what Wolfgang Streeck, a former director of the Max Planck Institute for the Study of Societies in Cologne, calls a “revolutionary situation.” Such a situation occurs, as Vladimir Lenin put it, “when the ‘lower classes’ do not want to live in the old way, and the ‘upper classes’ cannot carry on in the old way.” But a 21st-century revolution would be unlike any before it for one reason: humanity is facing the existential threat of climate breakdown and biodiversity collapse.

The global economic system is falling short of what people deserve and what the planet needs to maintain humanity’s life-support system. While the financial system generates unprecedented wealth for plutocrats like Musk, it also produces shocking levels of precarity and hardship, with economic inequality directly translating into political inequality. Moreover, it is dangerously over-indebted and prone to recurring financial crises.

Given these risks, nothing less than an economic and financial overhaul will do. The world needs systemic change. We should start by rejecting the dangerously flawed theory of money that underpins the status quo.

Ann Pettifor, Director of Policy Research in Macroeconomics (PRIME), is the author, most recently, of The Global Casino: How Wall Street Gambles with People and the Planet (Verso, 2026).