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Independent Green Voice

Alistair McConnachie explains how our Debt-based Money System is
the Driver of Unsustainable Growth, and What we can do to Stop it

The publicly-owned Bank of England

Money Reformers advocate publicly-created, debt-free money as distinct from privately-created, debt-based money.

Publicly-created money - sometimes called "debt-free money" 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.

The publicly-owned Bank of England creates "publicly-created money" when it prints the notes which it sells at face value to the private banking system on demand. The profit -- called seigniorage -- is simply the face value minus the cost of printing. This sum is paid to the Treasury as, effectively, a debt-free input to the public purse. Around 3% of money in circulation is notes created by the Bank of England. With the ever-declining use of cash, this debt-free seigniorage revenue is reducing all the time.

Publicly-created, debt-free money is Money by the People and for the People. It is money created by a public body, the profit of which benefits the people.

Privately-created money -- sometimes called "debt-based money" is money created by private organisations for their own private profit and which benefits nobody but themselves.

These private organisations are the High Street banks, that is to say, the commercial banks -- all the banks other than the nation's Central Bank.

As we said, 3% of the money is created by the Central Bank as a publicly-created, debt-free input to the public purse. The other 97% of money in circulation is created by the private banking system as a debt, and consists merely of electronic digits -- like your mortgage or overdraft.

It is 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 facility.

This may be surprising to some 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 privately-created, debt-based money -- created at its point of origin, as a debt for the private profit of the bank.

This is money that banks created out of nothing in the first place. It did not exist before the bank created it.

It is our debt-based economic system which is driving the unsustainable growth which leads to resource depletion, environmental destruction and man-made climate change.

It is the debt-based nature of our money supply which drives this need for "growth".

This is because 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 demands.

Systemic debt in society tends to constantly work to push costs and prices upwards, 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.

Debt is to the economy as high-octane fuel is to a jet engine. But this is not jet-propelled growth, its…

Endless debt leads to endless pressure for endless growth.

To summarise, 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'Hallorhan said in that film: "It's out of control, and it's coming your way!"

Here are two Money Reform Proposals to Promote Publicly-created, Debt-free Money:
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 money supply which is either largely or wholly publicly-created, debt-free. Either reform would ensure that the debt-free money would tend to neutralise the effects of the debt-based money. This would lower the level of debt in society and reduce the negatives associated with systemic debt.

Michael Rowbotham's reform, promoted in his book, The Grip of Death (1998), is intended to move the money supply to being largely publicly-created. It can be summarised in 3 parts:
1. Commercial banks are allowed to continue creating credit. No legislation is needed to change their status.
2. The State -- via an independent public body -- creates and spends into society a certain amount of debt-free money each year, allowing the public purse to benefit from the seigniorage on the amount created.
3. The amount of debt-free money supplied to the economy would match the net growth in debt per year.

Joseph Huber and James Robertson's reform promoted in their book Creating New Money (2000), differs from the Rowbotham reform in that it is intended to move the money supply to being wholly publicly-created. It can be summarised in 4 parts:
1. Forbid private banks to create money.
2. An independent public body -- 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.
4. It is this money which private banks compete to attract into their savings accounts, in order to lend out to their customers.

The Huber/Robertson reform seeks the full social ownership of the power to create money.

As our government and public sector becomes increasingly indebted, so it must raise our taxes, which then raises our rents and mortgages, and lowers our benefits, savings and pensions. For example, the amount required from our taxes to pay the interest on the National Debt is £30bn -- more than the amount spent on "Housing and environment", or "Industry, agriculture, employment and training" or "Personal social services", and almost the same as the £33bn spent on "Public order and safety"! (HM Treasury, Budget 2007, Chart 1.1. and 1.2, p.15). At the same time we're working longer hours for less pay and suffering the stresses of debt enslavement.

Our Money Reform proposals have the potential to reduce public debt and hence our personal debts.

The Private Finance Initiative (PFI) and Public Private Partnerships (PPP) are strategies invented by the banks for their benefit. It's an attempt to raise money for the public sector from the private sector. However, it will always be more expensive for the taxpayers in the long-run. Our government would rather close hospitals that are not on PFI and build new ones that are on PFI. This is privatisation of the NHS via PFI. Money Reformers advocate that the money can be publicly-created, debt-free and spent into society at no cost to the taxpayer.

The way our money is created leads to intrinsic debt in the system, which leads to unsustainable levels of debt at a personal and public level. Thus, Money Reform is a major part of an anti-poverty platform. It has the potential to reduce public authority debt, reduce our council tax, improve our public spending and services, improve our schools and hospitals, support our pensioners and students and fight poverty and ill-health in our city effectively.

Some groups claim, unimaginatively, that "The poor are poor because the rich are rich." This "redistribution argument" is not creative. It regards money as finite. They think there is only so much circulating and they have to grab a little bit of it for themselves. They think it's like a cake, and there is only a little slice available for each person.

The redistribution argument fails to grasp that money is not finite. It is infinite! It is created on demand, out of nothing, for private profit, every time someone takes out a loan from the private banking system! It is this debt-based nature of money which creates the intrinsic debt in society, which drives the poverty. We can use publicly-created money to Fight the War on Poverty!

Student education is an investment in the future, yet students are burdened with £25,000 of debt before they can even set foot on the property ladder and make their way in the world! They are becoming enslaved to the banking system.We want to focus people and society towards an appreciation of quality of life, and away from the constant pursuit of money and the interests of the banking system.

Publicly-created money has the potential to ensure full student grants for all and bursaries targeted at students and apprentices who are studying and training in needed subjects and skills.

Banks make
huge profits because our money supply is, essentially, privatised and banks have a virtual monopoly on its provision.

Money Reform Policies to Promote
Publicly-created, Debt-free Financing

Our taxes, rents and mortgages are going through the roof and our public services, benefits, savings and pensions are going through the floor. A key reason is because money is only coming into existence as a debt created by the private banking system for its own private profit. Debt is systemic to the economy. Here are our Policy Proposals to combat its negative effects:

  • Introduce a Bill to set up a Scottish Debt Commission to investigate the link between unsustainable growth and poverty and the way money is created as a debt for the profit of the private banking system, and develop solutions including the possible establishment of a publicly-owned, democratic, accountable and not-for-profit Public Investment Bank, which will create a supply of money, free of debt, to fund specific public projects agreed by Parliament. This would ensure a massive injection of public funds which could be made available to improve the quality of life for all citizens, while ensuring no added burden to the taxpayer.

  • Establish a Cross-Party Group in the Parliament to investigate reform of the debt-based money system which creates systemic debt in our society. At this stage, we really don't know the long-term effect of a debt-free, publicly-created funding stream as per Rowbotham and Huber/Robertson. Would a stage be reached where local authorities, for example, could become self-financing and able to raise their needs via council tax and non-domestic rates alone? A Cross-Party Group can act as a Think Tank to promote and investigate these ideas, commission studies, and find answers.

  • Organise an Annual Conference in the Parliament on Money Reform, and use our public profile, to promote understanding of the relationship between unsustainable economic growth and the way in which money is created as a debt to the profit of the private banking system. This is the start of the process of getting this on the table!

  • Pay Interest on Local Authority Debt with publicly-created, debt-free money. This will gradually eliminate the debts of each council and cut our council tax by half, since an amount usually equivalent to half our council tax is used to pay the interest on the local authority debt alone!

  • Abolish PPP and PFI and, in the short-term, go back to the low-interest Public Works Loan Board. As Money Reformers, however, we advocate that the money can be created publicly by the State, debt-free and not borrowed!

  • Oppose the Sell-off of public museums, art galleries, sports premises, and parks to private trusts.

  • Regulate Bank Charges to avoid excessive charges.

Alistair McConnachie is the author of recently released Clarifying our Money Reform Proposals,
a complete 40-page, A4 manual explaining the concept of Money Reform, which can be purchased here.
He has spoken on these issues in the House of Lords, Toronto, Chicago and Dublin.

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