In money campaigner James Robertson makes the case for wholesale reform of the money system. At the heart of our debt problem, of our desperate need to grow, and our overconsumption of the earth’s resources, lies one crucial common factor – the creation of money as debt.
97% of our money in the UK is created by commercial banks. Through the magic of fractional reserve banking, they have the unique privilege of being able to lend money into being, and charge interest for the service. The other 3% of the money supply is the cash element that circulates as notes and coins, issued by the Bank of England.
The problem is that if you were sitting down to create a money system today, this isn’t what you’d create. What we have today is the result of several centuries of innovation and tinkering. Unfortunately, the main purpose of most of the innovations was, in Robertson’s words, “to transfer wealth from poorer and weaker to richer and more powerful people and countries.”
When I first read that, I was a little sceptical. It sounded like a rather black and white statement to make about the money system. A quick historical tour however, and I realise it’s probably true. The idea of money is as old as the hills, but the invention of official currency, and then of national banks, and then paper money, were all quite deliberately designed to extract wealth and power from private citizens and deliver it to the authorities.
“Unless they give it away, anyone who creates new money will profit from the difference between its value and the cost of producing it.” This was Henry VIII’s idea when he called in silver coins and reissued silver-plated coins in exchange, pocketing the difference to fund his wars. Paper money extends the same principle, initially promising gold in exchange for notes, but then withdrawing that promise and keeping the gold. The ultimate expression of it is the current banking system, in which the typical house-owner will repay the cost of their house a couple of times over through their mortgage, even though the cost of issuing the mortgage is negligible. The power and wealth no longer accrues to the king or the empire, but to the bank and its shareholders.
Over the centuries of gradual development, we’ve come to focus on with the workings of the money system and forgotten what it’s actually for, Robertson suggests. We need to rediscover the purpose of money, which ought to be to facilitate fair participation in the production and exchange of goods and services, within the planet’s capacity.
Future Money suggests several key reforms, including taxes based on consumption rather than income, land value taxation, an international currency, and a citizens income. At the centre though is the radical proposal that “public agencies serving the common interest should create the public money supply.” This essentially means that (in Britain) the Bank of England would create all the money, and “give it to the government to spend it into circulation on public purposes.”
So far, I agree with Robertson’s critique. I’m with him on tax, local currencies and several other things (“neither capitalism nor socialism now provides us with answers” for example, or his belief that “Economic growth is a misconceived national goal.”) On the Bank of England as the sole creator of money, I’m not so sure.
For one thing, is the Bank of England fit for that purpose? I’m not sure I trust it that much, given their stewardship of the financial sector during the crisis. Second, wouldn’t this lock us into a pattern of big government, with government spending becoming the main way that money is distributed around the economy? Again, could the government be trusted to do that properly?
I wonder if this solution makes money into a bigger thing than it really is. Money is, after all, just an agreed mechanism of exchange. It could be anything, and the big solution here still treats money as a monolithic, nationalised and centralised system. I don’t know what a better solution would be, but I can’t help thinking it ought to be simpler than that, smaller, localised or even personalised. I’m not even sure we need money in a digital age – surely there are ways to keep score that don’t require an abstracted medium of exchange.
Future Money is readable, interesting, and well-informed. The material on the citizens’ income in particular is excellent, and I’ll write more about that another time. But I’m not sure that it’s final solution is as radical as it could be.