Making a Case for Money Reform

    by James Gibb Stuart

    That the economies of even the most developed countries, have failed to maximise upon the great advantages of modern technology for the benefit of their peoples.

    (a) decaying social infrastructures;

    (b) an unsustainable exploitation of irreplaceable resources;

    (c) the rich getting richer and the poor getting poorer.

    A money system founded on debt, whereby democratic Government, which should be the nation’s arbiter, and dispenser, of both social and economic justice, has traditionally financed itself through extensive and irredeemable borrowings from the private banking system, thereby:

    (a) limiting its expenditures to what can be afforded in debt servicing;

    (b) putting undue leverage and power in the hands of private financial institutions, inevitably to be used for their own selfish aims.

    To redress the balance by restoring to representative government — or one of its delegated instruments — the right and responsibility for creating sufficient money to carry out Government’s essential functions without borrowing.

    Before the invention of the modern banking system, economies were based on “coin of the realm”.

    Even when banknotes become the accepted form of legal tender, their creation and issuance remained a privilege of Government, a situation which persists to this present day.

    For instance, when the United Kingdom requires an increase in its stock of physical “cash money” — notes and coins — to cover the expanding needs of commerce and industry, HM Treasury raises a form of Treasury Credit authorising the Bank of England to mint the agreed amount of extra currency. These are sold at face value to the banks, and the revenue credited to the public purse. No borrowing!

    But with the increased sophistication of banking, involving credit cards and the drive towards a cashless society, notes and coin now make up a drastically reduced proportion of the total money stock, the ever-widening gap being filled by interest bearing private bank debt.

    For example, whereas in 1963 around 35% of the British money stock was debt-free notes and coin, by 1996 this proportion had fallen to less than 5%, the remainder being bank-created money.

    This now represents such a severe loss of revenue to the Exchequer, and to the nation as a whole, that pressure is increasing upon both HM Treasury and the Bank of England to widen the scope of those Treasury Credits for the financing of government expenditures that do not involve physical cash money — what we can term “non-cash money”.

    Whenever they are challenged, Central Bank and Treasury officials and their political spokespeople have stoically maintained that any extension of government self-financing, beyond what is required for the creation of banknotes and coin, would result in immediate inflation.

    Thus far no open debate has been held on the subject, and officialdom has never been obliged to enlarge upon its alarming contentions.

    But Money Reformers, mindful of this, have been at pains to elaborate on the disciplines that would have to be imposed on Government Money Creation, so that runaway inflation did not indeed emerge as a consequence.

    It has been suggested, for instance, that the powers should be vested in some statutory body, and that, initially at least, the use of Government Money Creation could be limited to the funding of some unavoidable item of public expenditure.

    Here a neat solution emerges. It was suggested in The Money Bomb, [available from Prosperity for £5 at the address below], that if a Treasury Credit were issued to fund the annual ongoing interest on the National Debt, it would remove the main cause of Government borrowing, stabilise the Debt itself, and leave taxation to take care of all other legitimate outlays.

    When The Money Bomb was written, debt interest and public borrowing in the United Kingdom were tending to track each other very closely, so that to find a way of funding one would be virtually to eliminate the other.

    In the escalating figures for Debt interest, we have a debilitating factor which has bugged the chancelleries of democratic societies for the whole of this century, causing cutbacks in social spending and renewal of national infrastructures, mitigating all attempts at the elimination of poverty and inequality, and putting an undue emphasis upon the extraction of non-renewable resources

    It’s been said that, “In a journey of a thousand miles, it is necessary to take the first step.” Here is that first step.

    At this point let the debate begin.

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