economics

The Copernican revolution in banking

In the 16th Century, Nicolaus Copernicus set out a radical idea: that the sun did not travel around the earth, the planets revolved around the sun. It was a scientific breakthrough of incalculable significance, but was highly controversial at the time. Copernicus’ book, De revolutionibus orbium coelestium was banned by the Catholic church for almost 300 years after its publication. Nevertheless, the quite literally revolutionary idea got established because it was true, and it was a thought that you could build on in all sorts of new ways.

This week I’ve been reading a book called , and author James Robertson argues that a similar intellectual breakthrough is required in the money system. “The fact is that today’s professional understanding of how the money system works is still at a primitive stage” he writes. “It parallels in significant ways the failure in pre-Copernican times to understand that the Earth goes round the sun, not vice versa.”

The breakthrough idea is really quite simple: that the money system is a human construct, built over the years for specific purposes. It can therefore be changed. Money isn’t a mysterious force beyond our control, and the money system we have now is one of many different ways of supplying money.

Robertson is right that our understanding of money is primitive. In all the fallout from the financial crisis, the arguments over how to regulate the banks or how to ease the credit crunch, the fundamental questions about how money works, and what money is for, were never asked. All the politicians’ solutions leave the foundations of the money system untouched, always working within the existing economic framework. What if the existing money system is part of the problem? What if allowing commercial banks to create money as debt is actually a bad idea?

Once you dare to ask those sorts of questions, you can begin to see other ways of creating money, other purposes that money might serve. Without that intellectual breakthrough we’re all basically economic flat-earthers, wondering where the money went and why no bailout ever seems to be big enough.

It’s not too late to fix the money system. In fact until we do, we are unlikely to fix much else. I’ll explore this a little more when I come to review the book, but see the for an introduction.

 

 

 

2 comments

  1. Positive Money’s bill is the most conservative possible way of changing the money system meaningfully. However I think they have realised that with only 2 MPs supporting it, it’s not the most impactful approach and they are concentrating instead on educating the people.
    We have been seduced into valuing everything terms of money and into seeking to meet all our needs via money. This is very beneficial to the cartel which produces money. If the government won’t or can’t curtail this cartel then I would like to remind the people that our use of money is for the most part voluntary. It is only needed to pay taxes and to settle debts enforced by the court. For everything else we are perfectly able to issue and accept our own credit as money, without mediation from banks.

    1. That idea of issuing our own credit is, in my opinion, where the real revolution lies. It’s only a matter of time before someone comes up with a system that allows us to do that, and money will be redundant. But, it would also help if we stopped creating money as debt, or at least not as much of it.

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