By Alistair McConnachie
Politicians need practical proposals which are understandable and do-able. Here is a proposal intended to bring the Money Reform issue into the political debate, draw policy-makers into the argument, and put Money Reform on the political agenda. Let’s work through it, step by step.
THE PRINCIPLES … or “What do we believe?”
1- That the present method whereby virtually all money comes into society as an interest bearing debt to the banking system is contrary to the democratic imperative that the creation of money should be a public service, under public control for the public good. This democratic imperative can be summed up in the slogan: It’s the People’s Money.
As Richard Greaves stated (Prosperity, Nov 2001): “For as long as the power to create money is in the hands of private interests who do it for profit and control, we can never say that we live in a democracy.”
And as Bryan Gould, former Economics Spokesman for the Labour Party said in the New Statesman (19-2-93): “Why shouldn’t a socially aware and economically responsible government create credit where it is appropriate … in order to ensure investment is made and at the same time strike a great blow for the democratic control of the economy?”
2- That since the government can issue a security — which is, in effect, an IOU written by the government to the banks — then the government can create the same amount of money directly and debt-free, without borrowing from the banks.
THE AIMS … or “What do we want to achieve?”
– We want democratic control of the money creation process.
– We want government to create money debt-free, without borrowing from the banks.
THE POLICY … or “How will we achieve our aim?”
Policies should not be confused with principles and aims. Policies change as circumstances change and as new opportunities arise. Policies are to be judged by the extent to which they accord with the principles, and deliver the aims.
A basic policy to help achieve our aims is to ensure a proportion of the money supply is created debt-free by the government, and spent, not lent, into the economy.
This will establish the principle that the government can create debt-free money, and, by taking the creation of, at least, some money out of the hands of the banking system, it will go some way to establishing the principle that It’s the People’s Money, not the Banker’s Money.
THE METHOD … or “How will our policy work?”
The proportion created debt-free could be the annual amount necessary to pay the interest on the National Debt.
Or it could be equivalent to any figure which can be calculated in the Public Sector Borrowing Requirement, such as, for example, the amount of the annual Education budget.
Or as Mike Rowbotham has suggested in Ch. 16 of The Grip of Death, the amount of debt-free money supplied to the economy could match the net growth in debt per year, represented by the M4 statistic. Thus, the net increase in debt-money would be countered with a supply of debt-free money, and future repayments of this borrowing supported.
However, let’s not get too wrapped up in the method, or the technicalities — the fine details of the method — but rather, let’s concentrate on getting the principles established:
It’s the People’s Money, and the government can create it. And let’s support policies which help to establish these principles.
COMMENTS ON THIS POLICY
“But this policy does not go far enough”
Every journey begins with the first step. View it as part of a long-term strategy. It’s important to first establish the principle that the government can create its own money. This policy would establish that principle, and go some way to establishing the principle of democratic control over the money creation process. We can take it further from there.
“How will High Street banks be affected?”
Borrowing from the High Street banks has become one of the major ways in which money is supplied to the economy.
This policy does not specifically address the role of High Street banks, but a regular supply of government created debt-free money, which is spent, not lent, into the economy, would certainly affect the overall money supply, by tending to lessen the extent to which individuals went into debt to these banks.
As Mike Rowbotham explains: “… the system of creating additional number-money for the purpose of loans has been brought into disrepute by being relied upon as the money supply to the entire economy. This is not the purpose of a loan system, but that does not mean that there is no need for a loan system, and no place for one in an economy … In fact, the bank loan system could operate quite sensibly, and to the advantage of the economy and society as a whole, if it were just that — a loan system — a minor aspect of the financial system available for the convenience of people, not a money supply mechanism. Controlling the bank-loan system is the least of the problems; it has a natural controlling factor … no-one wants to borrow unless they have to … In other words, if we can get the supply of debt-free money right, the loan system will gradually fall into place.” Confronting Tyranny, p. 241 and see also The Grip of Death, p. 265.
“Surely, this will be inflationary?”
Inflation is caused by debts which, when assumed by individuals, lead to depressed incomes and demands for higher wages, and when assumed by companies, lead to price increases. Our proposal would not result in any such inflationary tendencies.
For example, say the PSBR required £10 billion to pay the Education budget. This money was previously to be raised by borrowing even more, at interest. This debt would have worked its way through the economy and caused inflationary pressures — for example, the tax increases necessary to repay the debt would lead to demand for higher wages, which would lead to higher prices, and so on.
This £10 billion has to be created anyway, and it is presently done by methods proven to be inflationary.
Our method will be no more inflationary than the present method of funding, and indeed, it will be less inflationary because there will be no debt and interest obligations, working their way through the economy and causing the repayment demands which push inflation. Debt-free money causes no inflationary push whatsoever.
Inflation could result if too much debt-free money came into society too fast, leading to everything losing its value.
However, we are presuming a monetary authority would be established to ensure debt-free money was created in a measured manner. The establishment of this monetary authority is a technicality of the method.
Above all, let us concentrate on establishing the principles that the government can create debt-free money, without borrowing from the banks, and it should do this because: It’s the People’s Money.