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1 Part 1: Sick <strong>Money</strong> 1 A Diseased System I am afraid that the ordinary citizen would not like to be told that banks, or the Bank of England, can create and destroy money. The amount of money in existence varies only with the action of the banks in increasing and decreasing deposits and bank purchases. – Rt. Hon. Reginald McKenna, former UK Chancellor of the Exchequer and former Chairman of the Midland Bank 1 This chapter looks back at the roots of today’s system of money creation and the origins of modern banking. It then goes on to explain how the process continues today, focusing in particular on the situation in New Zealand. A Brief History Up until the Middle Ages, the most common form of money in use in the marketplace in Europe was gold, either as coins or in bars. Because gold can easily be stolen, merchants needed a safe place to keep their supplies. At the time, goldsmiths were the only people with secure vaults, and so businessmen started to store their gold with them. Once they had made a deposit of gold, the owners received a note that promised to ‘pay the bearer on demand the sum of…’. It wasn’t long before people started to exchange these paper notes with each other, as they were far more convenient to use than heavy gold ingots, and were indeed considered ‘as good as gold’.
2 After that, it didn’t take long for the goldsmiths to notice that – most of the time at least – the owners of the gold stayed away from the vaults. At any one time, perhaps only a tenth of the promissory notes were returned. History doesn’t record the name of the first shrewd goldsmith who began to issue more notes than he had gold. But he simply printed more notes and lent them into existence, then charged interest on the loans and got away with it. If all his depositors were to come at the same time for their gold, he would, of course, be discovered, but in practice this seldom happened. To protect himself, he kept a certain fraction of the original gold in reserve so that he could pay some of the depositors on demand. In effect, this meant that the amount of paper money circulating was often nine or ten times the amount of gold actually held in the vaults. Then they discovered that ‘rowing’ the economy between ‘easy’ money and ‘tight’ money could create extra profits. When they made money easier to borrow by lowering interest rates, more people took out loans and so the amount of money in circulation expanded. They would tighten the money supply by increasing interest rates, thereby making loans less attractive and more difficult to obtain. What happened then is effectively the same as what happens today. A certain percentage of people could not repay their previous loans and couldn’t take out new loans to repay the old ones; therefore they went bankrupt and had to sell their assets to the goldsmiths or at auction for ‘pennies in the dollar’. Today, we call this upanddown rowing of the economy the ‘business cycle’, and the result often is that a certain percentage of those who have borrowed for investment, for business or for other reasons are losers in each cycle. Paper money, deposited in banks and supposedly backed by gold, began then to take on characteristics that the gold did not have, in that it increased when you left it there. By an accident of history the practice continues to this day as fractional reserve
Page 1 and 2: Healthy Money Healthy Planet by Dei
Page 3 and 4: 2 During the 1960s I listened on th
Page 5 and 6: 4 money. Richard’s enthusiasm for
Page 7 and 8: 6 must first be complemented by mon
Page 9 and 10: 6 For over a decade, Japan struggle
Page 11 and 12: 8 interestbearing money creation.
Page 13: 10 provides a benefit for seller an
Page 17 and 18: 4 Bank B. This is called a ‘depos
Page 19 and 20: 6 Second comes the bit where banker
Page 21 and 22: 8 debt, hence the collective debt c
Page 23 and 24: 10 simply unsustainable in a finite
Page 25 and 26: 12 pieces of paper grant the bearer
Page 27 and 28: 14 master of all industry and comme
Page 29 and 30: 16 Money Supply 1935 - 2000 120000
Page 31: 18 commercial banks and is lent int
Page 34 and 35: 2 And nor are things getting any be
Page 36 and 37: 4 international trade in currencies
Page 38 and 39: 6 The data on New Zealand mortgage
Page 40 and 41: 8 The scheme has had unintended soc
Page 42 and 43: 10 Household loans (1978-2000) 90 8
Page 44 and 45: 12 City Council in mid2000 review
Page 46 and 47: 14 Similarly, mortgages are classif
Page 48 and 49: 16 And it is not just bank assets t
Page 50 and 51: 18 Keeping the Secret But surely if
Page 52 and 53: 20 Deputy Prime Minister. I asked h
Page 54 and 55: 22 Individuals have to compete with
Page 56 and 57: 24 instability. This speculation is
Page 58 and 59: 51 cared for. The cancerous parts o
Page 60 and 61: 53 constraints. What we need are so
Page 62 and 63: 55 accelerating. Eighty per cent of
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57 waters to draw down. They also s
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59 As far back as 1987, a UN World
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61 The State of New Zealand Since 1
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63 Health and Disability Like other
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65 Low skilled jobs have largely di
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67 • One in two people in Ireland
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1 4 Unhealthy Globalisation The Sir
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3 Although the process of corporate
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5 globalisation is transnational ca
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7 Many others have spoken of invisi
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9 currencies to the US dollar. The
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11 policies of these nations in ret
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13 000). Round Tables The original
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15 annual meeting in the small ski
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17 When an enemy is powerful and ce
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19 In January 2001, protesters demo
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Martin Khor, Direitn 21
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78 Every day we hear politicians, c
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80 not return to the depression of
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82 billion, equivalent to 39 per ce
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84 which in turn rests on nature it
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86 increase. And when jobs are crea
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88 rather than adding them to the w
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90 achieved very different levels o
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92 placed at the top of the lists.
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88 6 Facing the Critics Through the
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90 the interestbased system, the
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92 good or fair or sustainable. An
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94 Certainly there are other ways o
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96 landlord who charges you rent al
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98 believe that credit to be valuab
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100 If interest rates were zero the
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102 It is quite fair that banks sho
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2 free money before, as we shall se
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4 In precolonial times, Maori tri
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6 In Maori tribes, the gift society
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9 What Gives Money its Value? To he
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11 accept money as payment, we unco
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13 goes still further and calls mon
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15 Spanish and Dutch coins from ove
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17 claimed that the UK’s financia
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19 Today, the Reserve Bank retains
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2 living systems. Finally, it discu
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4 If our species is to survive, a n
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6 with its own currencies, the patt
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8 While it is possible for each tea
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10 addiction, chronic illness and i
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12 4. Human economies can and shoul
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14 furniture transported at great c
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16 down and money has been moved ar
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18 areas? Is there a continuing dyn
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Some estimate the costs of traffic
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22 be a tension between the two. Th
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24 democracy at the local governmen
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26 as the individual organs of the
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2 The democratisation of national c
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4 her children who were fed by its
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6 happened - the imposition of a co
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8 existed and thrived for thousands
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10 In addition, by focusing on loca
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12 there is no hierarchy. As we saw
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2 Michael Linton, David Weston and
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4 could. He described them as ‘a
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6 resorts may find themselves amass
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8 problems. Since then, the system
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10 forms. In version 1, operating u
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12 All the following examples of co
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14 sent a researcher to check the w
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16 Salt Spring Island Dollars Salt
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18 British Columbia Financial Insti
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20 partnership. This trend has spre
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22 traditional rice planting and ha
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24 The city solicitor put the bigge
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26 In the next chapter on commercia
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28 43 Email from Eric Booth to Cal
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2 Enz, who were supporters of the f
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4 As with WIR, businesses are regis
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6 A significant innovation in New Z
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8 granting temporary credit where t
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10 requiring transactions to be 100
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12 participants of the scheme were
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14 Ideology of the Wirtshaftsring
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255 are already in possession of it
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257 that all hoards of money would
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259 sophisticated that Egypt became
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261 Austria, for a period of 14 mon
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263 US$260 million worth of work in
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265 Saving will become impossible.
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267 law professor in Italy. Profess
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269 The Chiemgauer 21 In early 2002
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271 Currency to Support Waldorf Sch
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20 It started in 1989 when Frank To
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22 Privately Issued Fiat Currencies
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24 The Note Corporation itself then
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26 andahalf years, A$3.5 millio
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2 of agricultural and mining produc
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4 such resource as fossil fuel, sin
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6 • The demurrage charge would re
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1 15 Lessons Learnt From Currencies
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3 Regardless of whether the transac
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5 payment of taxes. When the mayor
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7 within that global economy we mus
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9 Money can also be spent into exis
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11 Huber and James Robertson, 6 it
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13 apparently no one spread rumours
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15 One of the weaknesses of local c
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17 example (see page 000), the demu
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19 trading. We therefore need decen
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21 If citizens decide to build a se
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23 In Even if the Reserve Bank deci
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25 possibilities for reforming our
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27 1905. 2 Michael Reddell of the R
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2 Taxation Policies Before I discus
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4 But, like other assets, realest
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6 Most taxes fall on work. It makes
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8 slows down the increasing gap bet
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10 Bob Keall has also proposed taxe
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12 ways of avoiding paying tax. Tax
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14 Ltd, 1879. 3 Henry George, Socia
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2 of reserves, a single exchange ra
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4 revealed to show that they wanted
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6 Countries using the Australian do
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8 3 Helen Clark in an interview on
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2 community projects can be funded.
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4 feeling that the banks were not t
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6 terminals per 100,000 people, com
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8 to lend to groups rather than ind
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10 Islamic Banks Banks run along st
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12 decided to create an entirely ne
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14 Attempts to Start New Banks In 1
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16 During the local body election c
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18 Zealand Post was that there was
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20 Problem numbertwo — fees going
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22 Other microcredit schemes. A goo
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24 now operates are the Cooperati
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26 They donManchester Unity does no
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28 The Wellington Women’s Loan Fu
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30 The Future of Community Banking
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32 8 Quoted in ‘Banks Profit Exce
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34 45 Details of Consumers’ Insti
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2 created when commercial banks iss
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4 Fund (IMF) protect global corpora
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6 economic thinking and taxation sy
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8 It is not easy to start again and
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10 rest of the world, a US deficit
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12 competitive when the money syste
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14 environmentally friendly longt
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16 practitioners know a great deal
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18 moneycreation regime will natu
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20 international currencies. Some o
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22 and James Garfield have struggle
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24 away and the scientific programm
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26 Sources of Hope There are ground
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28 beneficial effects. Indigenous i
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30 taught me that some staff are re
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32 New Zealand’s isolation, humil
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34 • Visit Bali or Japan or any o
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36 Although such a system will not
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1 Ralph Chaplin Bars and Shadows. 2
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and narrated by Bill Still, and ava
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11 Lietaer, The Future of Money, p3
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37 Allison Stinson, ‘Developments
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4 Roy Madron and John Jopling, Gaia
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25 Viviane Forrester, The Economic
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2 Michael Rowbotham, The Grip of De
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25 Text of the Genoa G8 Summit, acc
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18 The Independent, 21 July 1999. 1
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14 Wolfgang Rosenberg, Money in New
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6 Fritjof Capra, The Web of Life: A
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11 Bernard Lietaer, ‘The Future o
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39 1.1 Warehouse receipts. (The fin
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41 2.3 By a commercial company, sma
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43 Summary of Complementary Currenc
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45 000) volunteers. Credits are put
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47 the currency generating enthusia
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140 Appendix 2: Useful Websites Gen
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142 writings of evolutionary biolog
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144 Green Dollars/LETS www.appropri
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146 www.earthsharing.org.au An Aust
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148 Email: bryank@earthsharing.org.
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Bibliography 1 Books and Chapters i
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3 Douthwaite, Richard, The Ecology
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5 Henderson, Hazel, Beyond Globaliz
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7 Mitchell, Ralph A., and Shafer, N
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9 Cobb, Clifford, ‘Displacing Bad
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Turnbull, Shann, ‘Why Reducing Ta
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The Guardian (UKbased daily) The
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1 Glossary Barter The direct exchan
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3 shared land ownership. Koha The M
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