These days journalists writing on the economy tend to describe the symptoms rather than the causes of high unemployment, government austerity and growing inequality. Following the financial meltdown of 2008 some have even suggested solutions, usually offering fixes to the regulatory framework. But when the writer omits the ‘M’ word (money) from economic discourse, I’m afraid all their ideas become redundant. I would go so far as to say they are doing a disservice to their readers and the public at large by failing to mention the elephant in the room. In this week’s ‘Inclusive Capitalism’ conference in London the familiar faces were wheeled out for the predictable public denunciations of global capitalism, unfettered greed and “too-big-to-fail”. The conference was convened by the richest family on the planet (but you won’t find them on the Forbes top 1000 list) with combined wealth estimated by some to be measured in the trillions. Despite all the standard rhetoric about a socially responsible form of capitalism, nothing will change until the public fully comprehends the number one issue of our time. Only when Mark Carney, Christine Lagarde and Prince Charles start talking about the abolition of privately created, debt-based money should we even begin to take them seriously. Of course such an affront to the obscenely wealthy would have seen even Prince Charles ejected from their Mansion House soiree.
Money was not always a taboo subject for the media. At the end of the 19th century the money question was frequently discussed in public. Back then most people had a clear understanding of where money came from; many recognised the obvious injustice in a system where the masses were forced to rent the means of exchange on a temporary basis. People understood how banks create money when they make loans; that loans create deposits rather that the other way around. It was tacitly understood that with this great power, with this stranglehold over the economy, recessions would be deliberately engineered. Following the creation of the Federal Reserve in 1913, Congressman Charles A. Lindbergh remarked that from now on, depressions will be “scientifically created”. Had Gordon Brown delivered his ‘no more boom and bust’ speech a century earlier he would have been laughed out of town.
It wasn’t even a century ago, in fact, but during the years of the great depression, when Sir Douglas Copland, Australia’s chief economist, (still revered today by the orthodox economics profession) was given short shrift by a clued-up audience in Melbourne as he delivered a speech explaining his theory of how to get the country back on track. In reality Copland was a City of London PR man, regurgitating the official line – Australia must pay her debts before she could feed her people. The economic medicine prescribed was ‘belt-tightening’; work harder, import less and export more. Sound familiar? Back then the agony of economic depression was intense; there was no dole or state welfare, millions of Australians could be seen wandering the city streets because they could not get handouts at the same place twice. Those with jobs would work hard all day for a single loaf of bread. In these tough times it was the sense of community among the people, the Diggers’ spirit, that kept the nation together. During the questions at the end of Copland’s talk, a farmer stood up and asked ‘Tell me Sir Douglas, you say if we import less and export more we’re going to be better off?” “That’s it!” replied Sir Douglas. “OK” said the farmer “so if we increase our exports by 25% and cut down our imports by 25%, things are going to be really good?” “You’re sure right!” answered Copland. “And if we increase our exports by 50% and cut our imports down by 50%, we’re going to be better off still?” asked the farmer. “Absolutely” replied Copland. Finally the farmer said, “Well suppose we export every bloody thing we’ve got and we cut our imports down to nil, according to your theory we’ve reached the Promised Land.” Two thousand people rose to their feet and booed Sir Douglas Copland out of the hall.
It’s almost impossible to imagine anyone confronting an economist like this today. We are forever told that the study of economics is so complex, only the experts can make sense of it; only the senior bankers really understand what’s going on and so we must simply accept their policies however absurd they may sound. It should be the media’s job to hold this power to account, to challenge the policies put forward. Journalists should be explaining to us, the public, exactly what it is that economists, bankers and politicians are up to. It is imperative that the public is given the information they need in order to fully understand this crucial issue so that they become engaged citizens, able to make informed decisions. But knowing that the corporate media serves only the interests of the wealthy should compel us to reject its’ propaganda without a second thought. We can no longer put our faith in institutions which are established to work against our interests, instead we need to actively educate ourselves on the questions of money.
Asking who benefits from man-made disasters will usually reveal the debt-trap, with the same dark forces pulling the strings. For example, during the potato famine in the mid nineteenth century, Ireland was a net exporter of food. Why? Because she had to repay loans to the City of London! The Ethiopian famine during the 1980’s was exacerbated for the same reasons. While Africans were starving, their leaders, captured in a ‘Web of Debt’, were exporting grain to feed European livestock in order to pay just the interest on their debt. The farmer in Melbourne knew it – this is the economics of the genocidally stupid!
An honest Fourth Estate would challenge governments’ economic theories on a daily basis. Governments have zero control over the economy. They cannot control the money supply nor have they any say into which sectors public monies are directed. This is why money can be made to appear scarce for education, healthcare and other public works while at the same time plentiful for war and defence spending. Even policies concerning taxation can be forced down from on high by unaccountable institutions like the IMF and the World Bank. Instinctively we know all this – Britain has spent hundreds of billions fighting illegal wars just this century. If we were to pay reparations to Afghanistan, Iraq, Libya and Syria as we should, this figure would likely rise to trillions. Last year the conservative government gave tax cuts to the rich and the media repeated the absurd lie that it would somehow raise revenue.
Today’s media oligopoly ensures the money question is rarely mentioned, let alone explained, which is why so many people still labour under the delusion that governments create their nations’ money supply. Despite numerous Supreme Court judgements to the contrary, most journalists working in the US corporate media maintain the myth that the Federal Reserve is somehow part of the Federal Government. Similarly in the UK, the public are led to believe the Bank of England is acting in the interests of the people when in fact it is acting solely in the interests of the private banking cartel. With the honourable exception of Martin Wolf in the Financial Times, the corporate media rarely even alludes to the implications of a privately controlled money supply.
With all this in mind it was somewhat disheartening,recently, to read a left-wing journalist writing on these issues in The Morning Star, a reader owned co-operative publication, and failing to mention the root cause of our financial woes. In ‘All Hail The Cult Of Work’, Ruairi Creaney offers more symptoms but no realistic cure. What makes Creaney’s omission particularly unforgivable is that the Bank of England, with a momentous admission, recently revealed just how money is created.
“In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.” ~ Bank of England | Quarterly Bulletin 2014 Q1 | Volume 54 No 1
It doesn’t take a genius to conclude that under our current system we, as a nation, will never be debt-free or truly sovereign. There will always be more debt than money in circulation. Ignoring this mathematical certainty is sure to prolong the crisis, and in fact, will mean the next financial meltdown will be bigger than the last.
Although Creaney draws welcome attention to the plight of the poor and working class, his unwillingness to even touch upon the reasons for rising levels of poverty and growing inequality makes his piece far too easy for economists and policy makers to ignore. In the words of a former governor of the Bank of England responding to his own critics, “the dogs bark but the caravan passes on.”
Perhaps I am being too harsh on Creaney; notwithstanding his money omission, many of the points he raises I happen to whole-heartedly agree with. For instance, the phrase ‘hard-working families’, employed in the rhetoric of the left and the right, is a crucial component of the class war lexicon. It’s a divisive term used deliberately to turn those with jobs against those without; the subtle message from all parties being, if you’re not ‘hard-working’ you are somehow less worthy, less deserving and less eligible for political representation.
Creaney is right to ask how many people with creative potential have been unable to develop their talents because they had no choice but to spend the majority of their lives in a factory. How many great minds have had their spark snuffed out by the ‘low-paid, unrewarding, stressful, degrading and tedious’ grind of hard work? Imagine how advanced our civilisation would be had these potential Einsteins, Newtons, Shakespears and Beethovens been provided with the economic security, and thus the time and energy, to develop their craft.
Creaney cites the strong case, made by the New Economics Foundation (NEF), for ‘reducing the standard working week to 21 hours’. I’m sure the majority of people the world over would embrace such a change in their conditions so long as they could afford to live with some comfort and dignity. In ‘The Top Five Regrets of the Dying’, Australian palliative care nurse Bronnie Ware writes that one of the most frequent regrets of the elderly, which came from every male patient she nursed, was “I wish I hadn’t worked so hard.”
The idea of a reduced working week is by no means a modern phenomenon, nor is it, as suggested by John Maynard Keynes, dependent on the ‘technological advancement’ of the 21st century. For her book ‘Web of Debt’ Ellen Brown has meticulously researched the history of economics and ‘the shocking truth about our money system’. She writes of the revisionist view of the Middle Ages:
“Modern schoolbooks generally portray the Middle Ages as a time of poverty, backwardness, and economic slavery, from which the people were freed only by the Industrial Revolution; but reliable early historians painted a quite different picture. Thorold Rogers, a nineteenth century Oxford historian, wrote that in the Middle Ages, “a labourer could provide all the necessities for his family for a year by working 14 weeks.” Fourteen weeks is only a quarter of a year! The rest of the time, some men worked for themselves; some studied; some fished. Some helped to build the cathedrals that appeared all over Germany, France and England during the period, massive works of art that were built mainly with volunteer labour. Some used their leisure to visit these shrines. One hundred thousand pilgrims had the wealth and leisure to visit Canterbury and other shrines yearly. William Cobbett, author of the definitive History of the Reformation, wrote that Winchester Cathedral “was made when there were no poor rates; when every labouring man in England was clothed in good woollen cloth; and when all had plenty of meat and bread . . . .” Money was available for inventions and art, supporting the Michelangelos, Rembrandts, Shakespeares, and Newtons of the period.”
While some progress has been made when compared to the working conditions during the industrial revolution, we are a long way from the leisure society of five hundred years ago. The key economic difference between then and now is money – specifically how it is created and, more importantly, who controls its quantity. Back then money served the people. Today the people serve money.
By any measure, England’s most successful and least well known currency is the tally stick. Introduced by King Henry I in 1100 AD, tally sticks were a form of debt-free money outside the control of the goldsmiths, moneychangers and bankers. There was confidence in, and demand for, tally sticks because they were declared good for the payment of taxes. This built-in demand meant they were traded as money, and were used to pay for goods and services for over seven hundred years.
Private banking interests inevitably sought to attack the tally sticks. They could not exert control over the government and the monarchy while this debt-free money was in circulation. Their opportunity came when Oliver Cromwell led a revolt against the Tudor monarchy. The Dutch moneylenders agreed to fund Parliament under Cromwell on condition they be allowed back into the country, having been expelled by the Catholic monarchy for the practice of usury. The moneylenders also insisted that their loans be guaranteed which meant the permanent removal of King Charles who would have certainly overturned the decision had he returned to the throne. From that moment on, the monarchy was never again allowed to create the nation’s money and by the end of the century, our fate was sealed with the formation of the privately owned Bank of England.
Once the original owners had bought their shares in the Bank they were determined to retire the tally sticks once and for all. Ironically, some purchased their shares using large-value tally sticks, other ‘owners’ used credit advanced by the newly chartered bank; yes, much like the First Bank of the United States a century later, sleight of hand allowed BoE shareholders to use borrowed money, created by the bank, to form the bank’s original capitalisation.
However, in a final twist, the tally sticks did not quietly disappear into unwritten history. In 1834 it was decided that the remaining tallies would be burned in stoves under the House of Lords, probably to avoid public scrutiny, but the fires quickly grew out of control and spread to the rest of the palace. Today, Parliament’s Living Heritage website refers to tally sticks as ‘an obsolete accounting system’. This lie is easily exposed by a visit to the BoE museum where a stick of hazel worth £30,000 used to purchase shares in the bank remains on display. In War Cycles, Peace Cycles (1985), Richard Hoskins wrote that by the end of the seventeenth century, about 14 million pounds’ worth of tally-money was in circulation – hardly a minor monetary experiment or mere accounting system.
Combatting Climate Chaos
I’m not sure I’d agree with Creaney’s assertion that ‘less work can assist in the fight against climate change and allow us to live more sustainable lives.’ Combatting climate change is going to take a monumental, global, collaborative effort and this will almost certainly involve more people in work. To survive we must convert our entire planet away from fossil fuel economies. To become sustainable and less polluting we will need whole new sectors dedicated to renewable energy. None of this will be possible with private finance; exponential debt is what drives exponential growth and this will always be at loggerheads with a sustainable future.
Another Idea Whose Time Has Come
Creaney briefly mentions citizen’s income, introducing ‘another idea whose time has come … which explicitly de-links income support from work and offers a basic income for all without means testing.’ Dedicating one line to this crucial subject hardly seems sufficient. In anticipation of the obvious ‘how do we fund it?’ type questions from media pundits and politicians, one would imagine a paragraph or two outlining the proposal would be sensible. Last year the Swiss raised enough interest to force a vote on a basic income but almost immediately ran into issues around funding, thus missing the crux of the idea. Thankfully groups like Basic Income Europe are intervening and showing that by using the credit of the nation, as suggested by C H Douglas, there is no funding gap for a basic income.
In the early twentieth century a Scottish-born engineer named Major Clifford Hugh “C. H.” Douglas had observed a gap in monetary terms between the value of what is manufactured and the purchasing power needed to consume it. This fundamental discrepancy is due to the distribution of the costs of production compared to the final market price of the goods. In ‘The Public Bank Solution: From Austerity to Prosperity’ Ellen Brown writes:
“Douglas saw that the economy routinely produces more goods and services than consumers have the money to purchase, because workers collectively do not get paid enough to cover the costs of the things they make. Businesses first pay out their costs to workers, suppliers, and creditors. Since the purpose of the business is to make a profit, they then set their prices at cost plus profit; but they do not collectively pay enough money into the circulating money supply to cover this profit. Moreover, the wages they do pay are not all spent, since people like to save some of their money and watch it “grow”. The result is an inevitable gap between supply and demand.”
C.H.Douglas could see that the solution to this mathematical problem was to get more money into the pockets of consumers. He proposed what he termed a citizen’s dividend, an amount to be paid to every adult in the land, to raise the collective purchasing power sufficient to consume the goods and services produced in the economy. This dividend was to come from newly created, government issued money rather than money borrowed or raised via taxes. Today a basic income could completely replace income support and unemployment benefit saving the government billions in the process. A non-means tested basic income would require very little bureaucracy and therefore would be, in contrast to central bank quantitative easing, an extremely efficient way of boosting the economy while at the same time raising the level of dignity for everyone.
So how would a basic income work in practice? Imagine if you will that in the UK every adult is given £1,500 per month; a basic income of £18,000 every year. What would people do? What would you do? The implications here are earth-shattering. The truth is you could do exactly what you want to! With the basic necessities of your life secured you would no longer be forced to enter the spirit-crushing rat race. But who would clean the streets, collect our rubbish, teach our children? Well, £18,000 per year is clearly not enough for everyone, so there would still be a demand for additional paid work. Perhaps some people would choose to work part time and spend more of their free time with their friends and family. Those menial, low paid jobs would undoubtedly be difficult to fill but the law of supply and demand would simply mean that to hire a cleaner would cost more money, and rightly so. Also when the basics of life are taken care of more people would choose to do volunteer work – this could be David Cameron’s ‘big society’ dream come true! Momentously then, this all means that for the first time in human history the dynamic of work would have drastically altered; the power of capital and labour would be reversed.
So would this new, government-created, debt-free money be inflationary? The honest answer is it could be but if the money supply was to increase in line with expansion of goods and services then inflation would remain low. A useful feedback mechanism has been suggested by Brian Leslie, author of Sustainable Economics. He posits that careful monitoring of private borrowing would allow for inflation to be countered by adjusting the level of the basic income. An increase in private borrowing would indicate not enough money in circulation therefore the following year basic income would increase. Conversely, a fall in private borrowing would indicate too much money in circulation so then the basic income could be lowered.
Politicians and their attendant economics correspondents insist that entrepreneurs create jobs. We hear it al the time – the wealth creators, the captains of industry – they need favourable economic conditions so we are lowering corporation tax or income tax for the high earners. We need their investment; they will bring prosperity to the town, city, region or country! The truth is, however, we create the jobs! You and I and the billions of other consumers around the world. If the entrepreneur could maximise their profit without the additional burden of more workers then they would. When demand (our consumption) increases, business profits will be even higher if they employ extra staff to satisfy that demand. As soon as we stop consuming, as sure as night follows day, the jobs are lost.
C.H.Douglas published many books on his views of money and banking, and his theories became political platforms in countries as far and wide as Norway, Canada, China, New Zealand and Australia. His work was even translated into Japanese where it became the basis for a great social experiment in the 1930’s. Douglas was also very concerned with the causes of war and suggested that economic war would always lead to military war. This was certainly the case in the years leading up to World War II when both Japan and Germany had, independently of one another, become great industrial powerhouses, threatening the commercial dominance of Britain and especially America. Before and after the war, economists, industrialists and politicians were, in private at least, unusually candid about the motives for war:
“Germany is becoming too strong. We must crush her.” ~ Winston Churchill to American General Robert E. Wood, in November 1936. Quoted in: Peter H. Nicoll, Englands Krieg gegen Deutschland, p. 83.
“You must understand that this war is not against Hitler or National Socialism, but against the strength of the German people, which is to be smashed once and for all, regardless of whether it is in the hands of Hitler or a Jesuit priest.” ~ Winston Churchill, Emrys Hughes, Winston Churchill – His Career in War and Peace, p. 145; quoted as per: Adrian Preissinger, Von Sachsenhausen bis Buchenwald, p. 23.
“Germany’s unforgivable crime before the second world war was her attempt to extricate her economic power from the world’s trading system and to create her own exchange mechanism which would deny world finance its opportunity to profit.” ~ Churchill to Lord Robert Boothby, as quoted in: Sidney Rogerson, Propaganda in the Next War (Foreword to the second edition 2001), originally published in 1938.
Following the hyperinflation in the Weimar Republic, caused not by the reckless printing of the government, but by the private Reichsbank flooding the economy with cheap money, Germany’s leaders followed the recommendations of Gottfried Feder, a monetary reformer not unlike C. H. Douglas. Feder understood that the credit of the nation could be harnessed to build roads and railways, schools and hospitals, anything in fact which would allow the nation to prosper. So, while the rest of the world was still suffering the effects of the Great Depression, Germany had rebuilt her infrastructure and was thriving. At the same time Japan had adopted the recommendations of C.H.Douglas and was issuing a citizens dividend. These economic policies had created two strong nations unhampered by the extractive policies and financial restraints of private banking. It would be naïve to believe this did not influence the decision to go to war. The vampires of Wall Street and the City of London were feeling threatened.
There are numerous examples throughout history of banks operating in the public interest. The Commonwealth Bank of Australia, run by Denison Miller, financed the fledgling nation and advanced the peoples’ credit to fund the war effort in 1915. The bank made a profit of £20 million which was paid back to the public treasury when Australian soldiers returned home. In stark contrast, Britain financed the First World War with money created on Wall Street and borrowed at interest. By the time the final payment was made just a few years ago, Britain had paid more than five times the amount of the original loan. A special relationship indeed!
In New Zealand a huge public housing project was financed using only the full faith and credit of the nation, saving billions of dollars which would have otherwise been extracted by foreign banking interests.
Even in the US, public banking organisations have achieved remarkable successes, although you’d be hard pressed to read about them in any history or economics text book. Ellen Brown explains that the Reconstruction Finance Corporation (RFC) was a crucial ingredient to Roosevelt’s New Deal, “building infrastructure and creating jobs without tapping into federal budget or raising taxes.” The RFC was America’s largest corporation and the world’s biggest banking organisation, authorised to make loans directly to farmers, states and public works projects. Sadly its successes are all but forgotten.
“If the American people ever allow private banks to control issue of their currency, first by inflation, then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” Thomas Jefferson in the debate over The Re-charter of the Bank Bill (1809).
There are many other examples of public banks successfully operating throughout history – and others are still thriving today. Probably the most famous in the West is the Bank of North Dakota – run for, and by, the state. North Dakota has the lowest unemployment rate and the lowest credit default rate in the Union and is the only state to escape the economic downturn! In fact, it has run a budget surplus for the past ten years!
Of course, nobody in the corporate media or academia would advocate a similar path to prosperity. The so called experts must recognize the truth about debt-free money but honest discussion is impossible – at least until their retirement or tenure is secured. We hear that governments printing money is equivalent to breaking the eleventh commandment – their usual counter-argument is to talk of hyperinflation caused by too much money chasing too few goods. Today we have the polar opposite situation. So to even begin to address the problem of money we must reject these contaminated, orthodox sources.
Thankfully, there are brave, independent voices out there; honest journalists, sincere economists and passionate monetary reformers can be found with just a little effort:
Bill Still has produced a series of wonderful and accessible documentaries exposing the sleight of hand, insider trading and corrupt practices of the moneyed vultures. His award-winning films include The Money Masters, The Secret of Oz and Jekyll Island. I met Bill after attending a lecture at LSE in 2009 – his mantra, usually directed at those advocating a return to a gold standard, remains: ‘its not what backs the currency that’s important but who controls its quantity.’ Bill has a Facebook page and a YouTube channel which I would encourage you all to visit.
Michael Rowbotham is the author of Grip of Death, the title being the literal translation of the word mortgage. His study of modern money creation, debt slavery and destructive economics is a must read for anyone wishing to understand just how this system has taken over every facet of modern life. Rowbotham shows the horrifying consequences of an economic system founded on money created by debt.
Ellen Brown is a litigating attorney, researcher and writer who has turned her training to the money question. She has written two books on money and banking; her first, The Web of Debt: The Shocking Truth About Our Money System And How We Can Break Free is a jargon-free expose which not only describes the problem in remarkable detail but offers real, workable solutions.
Review by Acres USA, April, 2010:
Ellen Hodgson Brown may have done the impossible. She wrote a book about the most stupefying subject in the world – money, where it comes from and how it is manipulated – and made it readable, compelling, even suspenseful. Web of Debt is a page-turner that explains the origin of the Federal Reserve, the functioning of our money supply, currency speculation, capital flows, and the rest. As you read, interest grows like a Wall Street bonus package. . . . The only downside – pardon the finance jargon – is a loss of innocence. Once the destructive reality of the contemporary monetary system sinks in, there is no longer any excuse for apathy.
Her second book The Public Bank Solution: From Austerity to Prosperity shows what can be achieved when banking is run in the interests of the 99% rather than the 1%. Once again Ellen has produced a readable and compelling look at an alternative system. She shows with examples from around the world and throughout history that public banks work admirably well, providing the key to sustained high performance for the economy and well-being for the people. Ellen is currently running for California State Treasurer this year with the promise of forming a state bank for the people, modeled on the Bank of North Dakota.
Brian Leslie is the author of Sustainable Economics – the Newsletter of the Monetary Reform Policy Working Group of the Green Party of England and Wales. He also produced a short series of films on monetary reform called Money Myths. Like Bill Still and Ellen Brown above, Brian is able to communicate what are sometimes seen as complex unknowable topics in a way anyone can understand. His sensitivity to his audience and detailed knowledge of the subject make Brian a very well respected teacher and public speaker. He’s not afraid to get stuck in at the deep end; while handing out leaflets at the London G20 protest in 2009 Brian found himself with thousands of others, kettled outside the Bank of England. Thankfully he and his group managed to duck out down a side street and avoid the hours of unlawful captivity.
Organisations like Positive Money are extremely effective in educating the people on just how money is created. Despite literacy on the topic of money being at an all time low, it is encouraging to see this organisation breaking through into the mainstream and now there are numerous Positive Money groups across the UK and beyond.
Smaller in scale but no less ambitious, Money Wales is a grass roots campaign investigating the viability of a public bank to fund infrastructure and commerce for Welsh communities. We must sincerely hope the Scottish independence movement is at least thinking along similar lines. A peoples bank of Scotland or a new currency for the Scots – true sovereignty and external debt have never been bedfellows.
No matter where we live, the issues are the same. Money is something we all need and none of us has enough of. But we are not seeking monetary reform out of greed – this is for our very survival. In the words of Bill Still, this is the civil rights struggle of the 21st century. Our grandchildren will ask us what we were doing when the world was finally lost to the vultures of private banking. How will you answer them? It’s not too late; we are now taking the first tentative steps to economic freedom, recognising our chains in order that we may together break free. Viva la revolucion!