Looking Beyond the Money Myth

    By Alistair McConnachie

    The following speech was prepared by James Gibb Stuart and delivered by Alistair McConnachie to the International Union Conference, of Land Reformers and Henry Georgists, at Edinburgh University, Pollock Halls, Friday, 13 July 2001. It has since been published in the book, “Proceedings of the Edinburgh Conference 2001”, available from the Henry George Foundation, 58 Haymarket Terrace, Edinburgh, EH12 5LA; Tel: 0131 346 7139.

    Ladies and gentlemen, thank you. First, may I give you James Gibb Stuart’s apologies. He has a prior arrangement, and is, at this point, presently making his way down the motorway to Leicester, where he’s attending the AGM of the National Pure Water Association, in his capacity as Vice Chairman.

    May I stand in for him and deliver the speech that he was going to be giving to you. Before I begin, let me introduce James to you.

    He is a man who has been involved in the Money Reform field for the last 35 years. And as Money Reformers go, he is one of the more prominent ones in Britain.

    He was also one of the first post-war Money Reformers. Before WW2, Money Reform had a strong pedigree. After the war it tended to fade out but it was revived in the late 1960s and 1970s by people like Edward Holloway of the London based organisation, the Economic Research Council, and by James Gibb Stuart.

    James wrote The Money Bomb which was published in 1980 and which was probably the first post-war mainstream book on money reform.

    It was this Money Reform field, that had been cultivated by the Economic Research Council, and people like James Gibb Stuart, that give rise — in the late 1980s — to an increased interest in the topic, and eventually in the 1990s to the Money Reform bible, The Grip of Death by Mike Rowbotham, who I am pleased to note is sitting at the back of the hall today.

    Now, in 1996 James Gibb Stuart and some colleagues got together and organised the first meeting of what they called The Bromsgrove Group. It was held in Bromsgrove, just outside Birmingham. It is a loose association of people — ecologists, environmentalists, money reformers, academics, religious people — all of whom have concerns in their own fields but who also realise that, at the root of their concerns, is the money question. Where does money come from? Who supplies the money? What can we do about it?

    I have been working with James Gibb Stuart since 1997, and together we produce a four-page monthly called Prosperity, and each month it raises these issues: The sorts of issues I am going to be talking about today.

    We also have the Bromsgrove Statement of Belief, which is a statement of belief that all the people who are involved in the Bromsgrove Group are generally agreed upon.


    The title of the talk that I would like to give to you is “Looking Beyond the Money Myth.” I want to address the big issue of how government gets its money and the need for all governments to have a sure source of debt-free finance, which is under their own control.

    Now, what do I mean by that phrase “debt free finance”? The entire financial system of all nations today is what we call debt-based; meaning that the process of going into debt is relied upon almost exclusively to create and supply money to their economies.

    Indeed, almost the entire money stock of every country in the world is supported by debt in four main sectors. These are private debts (such as mortgages and loans and overdrafts); industrial and commercial debt (which are owed by the corporations); government national debts; and international or Third World debt.

    Money Reformers, in general, are dedicated to the proposition that the state, through a democratically accountable authority, should create a supply of debt-free money, which should be spent rather than lent into the economy. This debt-free money can be used to fund public projects or to pay off previous national debt. Or, used in ways which place it directly in the hands of the people, such as a basic income.


    To understand the significance of that you need to understand how money enters society at the moment.

    Every year the government fails to collect enough money in taxes to pay for all its spending requirements. Therefore, it has to borrow the money and the amount required to borrow is known as the “Public Sector Borrowing Requirement” — the PSBR. The “national debt” is the total which is still outstanding on all the past years’ borrowing requirements.

    The government borrows this money by printing what it calls “securities”, which are simply pieces of paper which it sells to individuals, to pension trusts, to insurance funds and also to banks.

    It takes the money raised by these sales and it spends it on whatever it wants to spend it on. However, these securities demand a repayment. You buy a security and you expect the same amount of money back again, plus your interest on it. And these securities are becoming due all the time.

    So, when it comes time to pay back these securities, where does the government get its money? Well, it does not have the money to pay back these securities; that was why it had to sell these securities in the first place. So, to raise the repayment money, it sells even more securities and puts up taxes even further.

    Back in the 1920s, the inventor Thomas Edison put the absurdity of this very well. He said: “If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good …It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency.” [New York Times, 6 Dec 1921]

    So, the essence of the money reformers position is simply that the government, or the state, if you prefer, through a democratically accountable authority should put debt-free money into circulation directly, rather than, effectively, borrowing money, usually from the private banking sector.

    Some people may say, “Well, that sounds inflationary to me.” Whenever we have dealt with the Treasury on this issue they have come back to us and said that if the government tried to increase the amount for this type of finance beyond current demand for it, then we would lose out — sterling would collapse and inflation would take off. That is what Anthony Nelson, of the Treasury, told us in this letter in my hand of 22 February 1993.

    We challenge this notion. We are not advocating that the government flood society with debt-free money. We understand that the amount of money has to enter society in some kind of graduated fashion. However, it is possible to do that without inflation. It has been done before.

    Abraham Lincoln, for example, financed the American Civil War on debt-free money. The Australian government financed their First World War campaign on debt-free money. These are maybe not the nicest things we would like money to be spent on, but nevertheless they spent it when they had to, and it did not cause inflation.

    Bryan Gould, who was formerly the economic spokesman for the Labour Party, said in his essay “Jobs for all the boys — and girls: The Choice for Labour” produced by his Full Employment Forum [undated, but circa 1993]: “It may be sensible in the precise circumstances to monetise the debt — that is, to finance it through government created credit rather than borrowing or taxation. However shocking this may seem to monetarist opinion it is hard to see why private sector banks should have a monopoly over credit creation or why credit creation by government for the purpose of investment should be inherently more objectionable than credit creation in the private sector which goes largely on consumption.”


    Now, the other day when I was looking through some material for this meeting, I came across a motion that was laid before the House of Commons on 22 December 1964 by Captain Henry Kerby MP [It was an Early Day motion, and was not debated. Hence it is not in the pages of Hansard, but we have a copy from the House of Commons motions book.]

    Henry Kirby put forward a motion to restore the power of the issue of money to the Crown. He said: “This House considers that the continued issue of all the means of exchange – be they coin, bank-notes or credit, largely passed on by checks — by private firms as an interest-bearing debt against the public should cease forthwith; that the Sovereign power and duty of issuing money in all forms should be returned to the Crown, then to be put into circulation free of all debt, and interest obligations as a public service, not as a private opportunity of profit and control for no tangible returns to the British people; and that the volume of money be controlled appropriately so as to maintain stable prices.”

    Now, some would argue whether “all” the means of exchange should be so issued, but, generally, that sums up what we, as Money Reformers, are about.


    Now, to relate this back to your concerns as Land Reformers: James Gibb Stuart wrote a small booklet a few years ago called Economics of the Green Renaissance. And in it he described how he believed that money should be backed, not by any notion of gold but rather by the people, their skills and the resources which are available to them.

    And he used the example of being in a desert.

    He said: “You can site the most prestigious bank in all the world in the centre of a barren desert and invite it to monetize the desert’s assets in the form of currency and promissory notes and negotiable securities. All of these whatever their numbers or denominations would be worthless bits of paper since they would have no purchasing power in a land without people or resources.

    “But dig wells, find water, create an environment in which vegetation can exist and living things can grow, and multiply. Then your currency will have started to acquire a value. That value will have been determined not by the awesome dignity of the bank itself, the acclaimed financial expertise of its governors, or the imposing calligraphy on its note issue — only by the intrinsic wealth of the community which had gathered around its doors.”

    You know, we live today in a very rich society — rich in people, rich in potential skills and certainly rich in resources; and, there is no reason why anything which is socially desirable and which is physically possible should not happen just because there is a lack of bits of paper to exchange!

    The conventional economic wisdom today states that the monetarization of all resources must come as an interest-bearing debt from the banking system. We, as Money Reformers, say this whole pattern is flawed and, instead, we say: That which is physically possible and socially desirable should be made financially possible.


    There is a movement in France, in the academic world, especially among the students, who are becoming disillusioned with the conventional economic wisdom.

    An organisation has been formed called the “Post Autistic Economics” movement which regards the present economic ideology as inadequate and which is starting to question the whole wisdom of it. [See the February 2001 issue of Prosperity.]

    Not only students but also well-respected journalists have called conventional economics into question. Bill Jamieson was the Economics Editor for the Sunday Telegraph before he left last year to become Editor of the Business section of The Scotsman.

    In his final article as Economics Editor for The Sunday Telegraph he wrote on 2 July 2000: “Let me spill the beans about macroeconomics, unveil a truth so brutal that I could only write these words in my final column … Let me tell you as I stand at the door marked ‘Exit’, and with the getaway car revving up. Most of macroeconomics is bunk. Bunk as in tosh, bunk as in hopeless and useless and senseless. Bunk as in no bloody use: the misleading and the partial and the dated and the subject-to-revision in pathetic pursuit of truth long gone.”

    Well now, if we could just hear that truth from more economists, then we could start to set our economic system on to a more just and a more democratic path.

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