STOPPING THE DEBT
by Alistair McConnachie
https://www.prosperityuk.com/prosperity/articles/driver.html Why Reforming the
Way our Money is Created Holds the Key from a paper presented in the Cultivate
Centre, Essex Street West, Dublin on the 3rd October 2006.
to the lecture was the concept of the DEBT DRIVER:
This is shorthand for
the element of debt intrinsic to the economy which impels it, at breakneck speed,
on the route towards unsustainable growth. As we will demonstrate, this debt has
its base, its source, its point of origin, its genesis, in the very way in which
our money is created.
We will argue that if we are to restrain, and ultimately
to stop, that Debt Driver, then we need to switch from a system in which almost
all our money is created privately by the commercial banks as a debt 'to a system
where all our money is created publicly by a public authority, free of debt.
short, we will argue that the debt-based way in which money is created, is to
the world's economic system what high-octane fuel is to a jet engine or a performance
sports car. It is an accelerant, blasting the car, or the economy off at almost
unstoppable speed. Changing the way our money is created holds the key to stopping
that reckless journey!
WHAT IS MONEY?
can be defined as anything that is readily acceptable in settlement of a debt,
or taxes. Thus you may be able to settle a debt with a neighbour by exchanging
something, which may be your time, your skills, or your possessions. That is bartering,
and that which we barter is a form of money.
However, you can't pay your taxes
by bartering, so the state regards money as that in which you can pay your taxes.
This is either cash money -- banknotes and coins -- or non-cash money, that is
the account entry money which exists only as an account entry in a ledger or in
electronic format on a computer screen, and which you use your cheque book or
plastic card or internet facility to exchange.
Today, cash money represents
around 3% of money in circulation, and non-cash money represents around 97% of
money in circulation. (This was written in 2006 remember. We wonder what would
be the ratio of cash-money now that we know about 'shadow banking'?)
IS MONEY REFORM?
"Money Reform" also called "Monetary Reform" addresses:
1. How money is created at source, that is, how it is created at its point
of origin and
2. Who creates this money.
3.We are not speaking about anything
else when we use the term "Money Reform". We're not talking about alternative
economic forms of trading, such as LETs systems. We're not talking about Time
Dollars. We're not talking about Barter -- good and useful and important as these
alternative systems often are.
4. We are talking about HOW money is created
and WHO gets to create it. And we are going to investigate if there is something
in the HOW and the WHO, which is driving unsustainable growth in our society.
This is money created by a public body -- for
example, an accountable public body which is an arm of government, which has been
created by statute, and which has the power to create money on behalf of the people,
and where the profit from creating this money goes directly to the Exchequer -
which is to say, directly into the public purse, so that we the people benefit
financially from that creation of money.
a phrase for this: Publicly-created money is Money by the People and for the People.
We already have such a body, here in Dame Street, in Dublin.
The Central Bank
of Ireland creates a proportion of the money supply in a public manner, open and
accountable, and the profits go to the Exchequer. So, publicly-created money 'Money
created by a public body, the profit of which benefits the people.
OF MONEY AT ITS POINT OF ORIGIN
Money can be created free of debt -- which
is to say, it is created and given, granted -- to the recipient and there is no
requirement to pay it back. Or it can be created as a debt -- which is to say
it is created and has to be paid back.
So, money can be debt-free or it can
be debt-based. Created at its point of origin free of debt, or created at its
point of origin as a debt.
An example of debt-free money would be money created
either as paper notes and coins, or as account entries in a computer screen, and
granted free from any requirement to pay it back.
That kind of money can only
be created by a public body which is authorised so to do. It would never profit
a private company to do that! It would never profit a private bank to create money
out of nothing and give it to people with no requirement to pay it back!
OUR PUBLIC BANK CREATES DEBT-FREE MONEY
And we have the example of the
Central Bank of Ireland, or the Bank of England in the UK. These bodies have the
authority to print the cash - that is, the notes and coins -- and to sell them
to the private banking system as it is demanded, at face value. The money it makes
from this sale, it gives directly to the Exchequer -- which is to say, the public
purse. The word for that is "seigniorage".
We can define seigniorage as the
revenue which accrues to the State as a result of creating money -- at the moment,
this is only the cash money. It is the face value of the cash, minus the relatively
very small cost of printing, minting and distributing.
This is money which
has been created out of nothing by a public authority, and an amount virtually
equivalent to its face value has been credited to the public purse. The Exchequer
will then spend this money into society via its spending projects and that money
will circulate throughout society and it will be money which was created free
of debt at its point of origin.
It is utterly free from a background of debt.
For example, in relation to coins, we see from the Central Bank of Ireland's Annual
Report 2005, on p.122 quote, "As a result of the Finance Act 2002, the Bank is
permitted to transfer the net proceeds from the issue of coin directly to the
Exchequer. In 2005, net proceeds of coin issue amounting to 45million euros were
transferred to the Exchequer."
Thus we can conclude, the cash money circulating
in society is created by the state and is effectively debt-free as far as we the
people, and the public purse is concerned. This is publicly-created, debt-free
money. The bad news is that money only makes up 3% of money. That's because there's
a bad guy on the scene and we've spotted him!
Privately-created money is money which is created by private organisations
for their own private profit and which benefits nobody but themselves.
private organisations are the High Street banks, that is to say, the commercial
banks, all the banks other than the nation's Central Bank. And this guy is the
Debt Driver and he's getting away with the crime of the century, and last century,
and the century before that, and the century before that, and the century before
He's creating money for his own private profit and he's getting away
with 97% of our money supply! We said 3% of money is cash money, created free
from debt 'Well, the other 97% of all money in circulation is debt-based money
money which is created at its point of origin -- at its base -- as a debt. That
is, all account entry money which exists only as numbers 'in your account, and
which you transfer electronically by means of cheque book, plastic card or internet
Now what I have just said may be surprising to many people. Many
people imagine that the government somehow creates all the money and that the
private banks are just recycling it and moving it about.
No, the private banking
system creates almost all the money -- and as we say, it is around 97% of all
money in circulation.
All of this 97% is debt-based money 'created, at its
point of origin, as a debt. This is money that banks created out of nothing in
the first place. It did not exist before the bank created it.
THE PRIVATE BANKS CREATE DEBT-BASED MONEY
How do they do this? How do
the private banks create money? Simple, for example, if you take out a 100,000
euro mortgage, the bank doesn't have that money, but using your house as collateral,
it has the legal authority to create that money out of nothing, by writing that
amount of money as an account entry in its books, and lending it to you at interest,
allowing you to draw cheques on that sum.
That money didn't exist before the
bank created it. They created that money -- they originated that money -- as a
debt. Debt-based money. And they ask you to pay it back 'it's good business!
Money Reformers accept that banks are always going to be lending money. We don't
want to stop banks lending money, per se. We recognise that when people borrow
money from banks they will be "in debt" to the commercial bank for that sum and
they'll have to pay it back.
However, our concern is:
Are we going to
keep allowing private banks to create that money in the first place -- money which
didn't exist until they brought it into being for their own private profit.
are we going to get them back to what banks were originally intended to do --
and what most people imagine banks still do! -- which is to loan money, which
already exists -- and which has been previously created by a public authority
deliberately tasked with that money creation job. So now we are in hot pursuit
of this bad guy and this is the basic question which we are asking ourselves
HOW SHOULD MONEY, AT ITS POINT OF ORIGIN,
Should it be privately-created, as a debt, by private organisations
for private profit, as is 97% of money in circulation at the present time?
should it be publicly-created, free of debt, by a public body for the public good,
as is 3% of money in circulation at the present time? Privately-created, debt-based
money or publicly-created, debt-free money? Are we going to remove from the commercial
banks the privilege of creating money out of nothing, and return the money creation
privilege to the public sphere, back to the people where this power rightfully
belongs and where the benefits of so doing should accrue?
Are we to ensure
that banks will only be able to lend money which has already been created by a
public authority tasked with that matter? As we've seen, almost all money comes
into society at its point of origin as a debt, which has to be paid back.
banks, creating money out of nothing, as a debt to be paid back, with interest,
has become the way in which virtually all money is supplied to our economy!
government chooses to rely on people going into debt in order to provide the means
The private debt-based system is the way money is supplied to
the economy. We have to go into debt just to provide our medium of exchange. We
are utterly without a debt-free, stable circulating medium of exchange
a money supply created as a debt creates systemic debt throughout society, because
these debts feed into all other debts in society, and debts pile on debts, creating
economic instability, and leading to all the negative aspects associated with
personal, commercial and national debts.
Now, when virtually all our money
-- our medium of exchange -- can only come into existence as a debt then 'we cannot
express any surprise when debt becomes a problem throughout society.
cannot express any surprise about our relentless drive for growth, because as
we will show now, it is the debt-based nature of our medium of exchange which
compels the economy to grow.
INFLATION AND GROWTH
It is the debt in the system which institutes an
intrinsic inflationary imperative into the economy, driving itself, and us, recklessly
onward. Debt is the Driver.
For example, debts for industry mean that industry
has rising costs of production and has to raise its prices. Debts, for individuals
mean less disposable income, depressing consumer spending power, leading to wage
Systemic debt in society tends to constantly work to push costs and
prices upwards and disposable income downwards and wage demands upwards. And the
only way the economy can try to meet these demands is to keep growing and growing.
The economy has to keep growing to meet the demands of these debts.
We spoke earlier about debt being to the economy as high-octane
fuel is to a jet engine. Well this is not jet-propelled growth, its Endless debt
(which in turn) leads to endless pressure for endless growth.
when money is being created as a debt at its point of origin, then it will feed
into other debts throughout the economy and require more people and businesses
to go into debt to service them, which leads to another increase in the debt-based
money supply, which leads to more people and companies acquiring debt, and so
on and on.
A money supply based on debt is compelled to keep growing unsustainably
like a vicious Towering Inferno. And like Steve McQueen's character, Fire Chief
O'Halloran said in that film: "It's out of control, and it's coming your way!"
REMOVING THE DEBT DRIVER: "SEIGNIORAGE
So, is there some way we can damp the flames of this Towering Inferno
of debt-based finance? Is there some way we can put out the fire? Is there some
way we can make The Great Escape! Is there some way we can put the system into
reverse? Can we stop the Debt Driver?
1. Forbid private banks from creating
2. An independent public body -- most likely a branch of the Central
Bank, creates all the money debt-free, on a regular basis.
3. Government spends
this money into society via its spending projects. The money would enter society
by being spent, not lent, by government, on projects in the public or private
sphere. This money would amount to billions a year, depending on what country
we are talking about. (There would need to be some brake on the government's power
here Governments would be creating the money on behalf of the People - not to
wield their own power '.ed)
4. It is that money which private banks would now
compete to attract into their savings accounts, in order to lend out to their
CATCHING UP WITH THE DEBT DRIVER
The debt-free money will work to neutralise the effects of the debt-based
money. Like water on a fire, the debt-free money will dampen, and then put out
the flames of the debt-inferno. In time, all money circulating in society would
have been created in this debt-free manner.
The debt-driver element in the
economy would have been neutralised, and the economy would stabilise. We would
now have a stable medium of exchange circulating free from a background of debt.
The first consequence of a debt-free money supply is that there is going to
be less debt in society. More people will be able to pay off their loans. And
less people will need to borrow in the first place.
The debt which drives
costs, prices and wages upwards will slow and then stop. The economy will stabilise.
Not only will the Debt Driver be stopped by this reform, but the damaging
effects of currency speculation will also be stopped '.
IT IS AN ECOLOGICAL AND DEMOCRATIC IMPERATIVE
Now, we've spoken about
how changing the way in which our money is created -- from privately-created,
debt-based money to publicly-created, debt-free money -- will have economic effects
which will lessen and eventually neutralise the drive for endless growth. Clearly
that is an ecological imperative.
But at this point we come back to answer
a question we started with: Who should create our money? To whom does the power
to create money belong? And if we answer, "the People" then we cannot morally
go back. We cannot say "sometimes" or "mostly".
If it belongs to the People,
it belongs to the People, it belongs to the People, and we need to demand the
social ownership of the power to create money. This is a huge democratic issue
which our present political parties are either missing or avoiding.
HERE'S YOUR TAKE-AWAY MESSAGE
To stop the Debt Driver which propels us
towards endless growth, we need to switch from the privately-created, debt-based
money supply, which we have at present, to a publicly-created, debt-free money
That is, we need to switch from the present system where private banks
create 97% of the money supply, out of nothing as a debt, for private profit,
to one where the private banks can only lend money which already exists, and which
has already been created by an independent public body, debt-free for the public
good, and spent into circulation by government. Comment:
This will only happen
if enough Australians determine to get the bank-monkey off their backs and fight
for a sovereign national financial system. Make sure you share this information
with as many as you can. It affects them just as much as it affects you.
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