Rethinking Economic Growth

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I recently read Manfred Max-Neef and Philip B. Smith’s book Economics Unmasked. Its first half is an interesting critique on economic orthodoxy, its second is packed with ideas for positive social changes.

I want to discuss Max-Neef’s “Threshold Hypothesis” here, but first I need to talk about economic indicators in general and more specifically GDP. Now, anybody that doesn’t live under a rock will be aware that today’s economists and politicians are obsessed with economic growth (Max-Neef calls it a “fetish” in this excellent interview by Democracy Now!) and that their standard metric of growth is GDP. GDP stands for “Gross Domestic Product” – it is the total market value of all the goods produced and services rendered within a nation’s borders over the course of a year.

By recording monetary transactions, economists can keep track of that total market value. Looked at in this way, GDP tells us in some sense the “total amount of stuff being done” in the economy. For example, imagine that the “Hole-Digging Corporation” pays me a salary of £100 to dig a hole. Later, the competing “Hole-Filling Corporation” pays me a salary of £100 to fill it in! GDP, as valued in terms of my “services”, has now increased by £200. All such “stuff being done” can be beneficial, neutral or harmful; the money being transacted can represent anything, but GDP will not inform you as to what.

In my somewhat mischievous example, digging a hole added to GDP. So did filling it in. What about more realistic examples? Cleaning up pollution adds to GDP. So does polluting. Mediating negative social and health outcomes of drug abuse adds to GDP. So does the production of various harmful addictive substances. Investment in schools, hospitals and social infrastructure adds to GDP. So does the manufacture of armaments to kill and maim one’s fellow human beings. For economists to aim for growth in GDP, in monetary transactions, irrespective of what these transactions represent, is totally ridiculous!

So GDP as an economic “indicator” does not really indicate anything much. What we want to know, presumably, is the health of our economy. We want an indicator that increases when the economy is providing well for people’s needs and improving their quality of life and decreases when it is not. Seeking to increase such an indicator would be a potentially sensible economic policy. Seeking to increase GDP is an absurd economic policy, because GPD lumps together the things that add to our quality of life with the things that subtract from it, treating both as positive contributions.

Economists working outside the mainstream realised all this years ago and developed alternative metrics, attempting to put a number on “economic health”, first called ISEW  (standing for “Index of  Sustainable Economic Welfare”) and later updated to GPI (standing for “Genuine Progress Indicator”). You can read about exactly what ISEW is and how it is calculated here. When these economists started to study trends in ISEW / GPI and compared them with GDP, they noticed something interesting. In developed countries GDP has grown more or less continuously in the last 50 years, but ISEW / GPI has not. What happens in almost every case is that ISEW / GPI increases until around 1970-1980, then stalls or begins to decline. The Friends of the Earth website gives examples of ISEW / GPI vs GDP growth over the last fifty years for several countries.

Prior to the development of the ISEW / GPI measures, Max-Neef and colleagues had proposed the “Threshold Hypothesis”, stating that:

“In every society there is a period in which economic growth contributes to an improvement of the quality of life, but only up to a point, the threshold point, beyond which if there is more economic growth, quality of life may begin to deteriorate.”

The plots linked from Friends of the Earth seem to provide evidence supportive of this statement, assuming that ISEW / GPI is a sufficiently representative metric of human quality of life.

So if all of this is true, why are all nations so hell-bent on chasing perpetual growth in GDP? I will suggest that perhaps the reason is a monetary one. First though, I need to explain where money comes from. A fact many are not aware of is that banks do not lend money. When a bank makes a “loan” to a “borrower” it does not take existing money from anywhere. It simply invents a new liability on its balance sheet; new money which the “borrower” owes the bank in the future but can spend immediately. Over 97% of our money supply is created this way (the other 3% being notes and coins), meaning total debt is roughly equal to the total money supply.

In this type of “debt-money” economy, a lot of work is done simply to service the interest on our substantial debts – money has to be passed around quickly enough to make all the interest payments – the “velocity of circulation” of money has to be large enough, in economics parlance. If the ratio of debt to money increases, this velocity must increase to compensate – more stuff must be done, so GDP must increase. Has the debt to money ratio increased? It certainly did in the UK leading up to the financial crisis, as the plot below (taken from Positive Money’s submission to the Independent Banking Commission, in collaboration with New Economics Foundation and Prof. Richard Werner) proves:

Exactly why the debt to money ratio increased during a “boom” would be an interesting question to have answered. Oddly though, the economics profession as a whole seems to have no interest in answering it! Mainstream schools of economics consider money and debt to be of no particular relevance to the functioning of an economy: money is merely “a veil over barter” and moreover “including money in the models would only obscure the analysis” (!) according to a popular undergraduate economics textbook. At this point, I feel members of the public might fairly ask why they should give credence to a single utterance of the economics profession ever again. Moreover, the neo-liberal emperor is not only naked, but is now busy stealing the shirts from the people’s backs, making them naked too!

Whatever the reason for it, the above plot implies we are forced to undertake more and more economic activity during a boom, simply to service the increasing interest due on our debts, irrespective of whether such increased activity is useful, desired or indeed democratically mandated. If GDP does not grow, the economy most likely collapses in a deflationary spiral of bankruptcies, since the money needed to service the interest on debts will not be transacted with sufficient velocity.

Perhaps a reformed monetary system, one where money is not created out of commercial bank debt, is the only escape from a global economy that will try in vain to grow forever, sooner of later (if not already) resulting in a planet-wide ecological crisis?

One thing seems certain: the planet’s ecosystems cannot take another decades-long, debt-fuelled growth binge: the “cure” for the financial crisis the majority of the disgraced economics profession is currently touting. See for example the 2010 Living Planet Report, which finds we are currently using 1.5 Earths and are projected to be using 2 Earths by 2030 under “business as usual”. More economic growth in developed countries would indeed be “asking people to drink poison in order to survive” the financial crisis. The cumulative dose might be a lethal one for much of life on Earth, including humans.

To summarise then: the evidence suggests that economic growth, as measured by GDP, is no longer in the interests of developed countries, the stability of the planet’s eco-systems, or indeed the probable survival of the human race. Developing countries, having not yet reached their GDP thresholds, should be entitled to grow. However, this will only be possible on a finite planet if the developed countries consent to abandon the path of perpetual economic growth. They can only do this, without inducing domestic economic collapses, if fundamental changes are made to “our” current monetary systems.

Widespread popular recognition of this may be the only hope of a decent existence for future generations. It would also be helpful, though not critical, for the majority of the economics profession to recognise it, rather than working actively to deny or ignore it – as they currently do.


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  • Dhavar

    When a bank ads to my account 100$ that I sholud return in a year at 10%, that means that i will have to give the bank back 110$.
    That means that the total stock of money created will by necessity be smaller than the total amount that should be give back and so destroyed.
    That is the reason of the spread in the deb/money curve you have showed.
    Then if we take the whole existing stock of money and give it back to creditors, then all the money would dissapear BUT STILL there would be DEBT UNPAID (the interest).

    • Nic the NZer

      Hi Dhavar, The argument which you have presented is simplistic and incorrect. I don’t think it is a good thing for monetary reform to be associated with this argument, because it makes the reforms look simplistic and foolish. There are of course good reasons for reform, but this is not one of them.

      Please don’t take this as a personal rebuke and try to understand why it does not apply.

      Extending your example, you will be able to repay the loan given that you work for the bank (or someone else who earns income from the bank). They pay a wage of just 11% of the original loan value, per year. You can then repay the loan, starting at 1% per year.

      When you make an interest payment, only the principal of the repayment is destroyed. The rest is bank income or depositor interest. In fact if you make an initial payment of $10 then no money is destroyed.

      Effectively you can repay the loan as long as the bank spends (or even loans) enough money to cover the interest, not the principal, into the economy.

      Steve Keen shows this better and more generally here,

      • Archytype

        Dear Nic the NZer;

        you say that the argument put forward is too simplistic. Well, in fact, yes it is simplistic when explained correctly. It does not need to be any more complex.

        The reason I say this is because as you point out “Effectively you can repay the loan as long as the bank spends (or even loans) enough money to cover the interest, not the principal, into the economy.”

        The outcome is that an ever increasing amount of loans must be made to increase the overall money supply, to allow those earlier loan-takers to repay their loans plus the interest.

        This increases the amount of corresponding Debt which is equal to the Principal + Interest, obviously. Hence the difference between the lines on the graph referred to above.

        The commercial banks are playing a sort of Ponzi / Pyramid scheme game and tricky balancing act, in that they want to make loans as that will make them money, but as more loans are made, more debt builds up, and eventually as experience has shown many times over, someone always has to default. It like a game of musical chairs. So the bank at some point must stop lending….sound like something you’ve heard of? (Credit Crunch perhaps?).

        This is complete insanity really.

        The argument must remain as plain, simple and to-the-point as much as possible, if it is to be understood by as many people as possible.

        And I’d like to finish my point with a quote by the late Terrence McKenna;

        “If the truth can be told, so as to be understood, it will be believed.”

    • Simon

      Dhavar is right in the sense that if all money is created as debt plus interest, then sooner or later more debt money with associated interest will have to be created. Unless of course debt free money is used.

  • Archytype

    Dear Nic the NZer,

    the point is: we are relying on the private commercial banks to put enough liquidity in to the economy for the loans to be paid off. They don’t always do that, or not into the right places.

    When you rely on a private profit making entity to do such a thing, you can pretty much guarantee that they won’t. History has shown us this.

    • Nic the NZer

      Hi Archytype,

      I totally agree with this. The problem with the fractional-reserve system is that when the economy dives then the outstanding debts can easily become un-payable. While there are worse things in the world than bankruptcy, a crash in the economy and finance system is not something that a politician will ever support.

      The simplistic argument is how ever too simplistic, and makes the reforms sound foolish. There is nothing inherently rigged about interest bearing debts which means fractional reserve banking has to lead to a collapse, there are other good reasons for reforms.

      I believe that Dhavars original example could equally be applied against the positive money system, but this says nothing about if he can repay his debt or not.

      • Dhavar

        No, “it could not equally be applied agaisnt the PM System”.
        In the current system each dollar created out of so-called loans have to be paid back some time later , -hence destroyed and exit the system- plus interest.
        In the PM System each dollar is created to pay for public products and services.Then, it has not to be paid back.It remains in the system.
        And, WHITHIN that system, any body who has saved some money may lend it to another.It is simply EXISTING money passing from one hand to another. There is no creation neither destruction of money.
        It looks as if you are not able to tell the difference between a money lender – who loans his own existing money – and a bank – who does not loan his own existing money but cretas money that has to be paid back.Think carefullay about the differences between these two apparently similar people because they use the same name – i.e. – loans to his actions.

        • Nic the NZer

          “When a bank adds to my account $100 that I should return in a year at 10%, that means that I will have to give the bank back $110.”

          Nothing in there says if the money you receive is created or loaned by the bank. What determines if you can repay the loan is your income, Dhavar.

          • Dhavar

            Many thanks. I´ve always thought that what determined if I could repay my loans was my neighbor´s income, not mine.I was soo wrong.
            “Nothing in there says if the money is created or loaned by the bank.”
            “In there”, obviously not.If you may prove that the money existed somewhere else in the universe prior to showing up on my bank account and that it entered my bank account coming from that “place”, please do not refrain yourself from doing it and enlighten us. Amicus Plato sed magis amica veritas.

          • DozyHole

            I have to agree with Nic The NZer.

            Dhaver, you seem to imply in your first post that its impossible to pay back interest unless the money supply expands to cover that interest, correct me if that is not what you meant.

            You can pay your interest of course, it just means that by some indirect method you will do some work for the bank, or work for someone who has been paid by the bank etc.

          • João Granchinho

            Within the framework of a fractional reserve system, a bank’s lending activity (credit extension) creates new money. When the loan is repaid the principal is destroyed but the interest has to come from somewhere – most of it is found from further credit extension as Nic said. This only needs to happen within FRB.

            In a Full reserve banking system, a bank is just like an individual lender, who only lends what they actually have, and no new money is created thru loans. So a bank’s lending activity within such a system does not make the system unsustainable (as happens in FRB), the only consequence from this activity is the bank’s concentration of wealth over time. This is OK if 1) we let banks fail when they make bad decisions AND 2) we don’t force people to be indebted to these private banks (in fact, the shareholders) to go about their lives.

            Regarding Dhavar’s argument being simplistic and incorrect, any sustainable system has to be simple by design. In fact we should strive to be able to explain and completely define any working system in the simplest manner (see Occam’s razor). Any complex system is shown to eventually fail – so his argument should be as simple as he can without being incorrect. Nic, I don’t see where his argument is incorrect, can you specify?

          • Nic the NZer

            I think DozyHole summed up why the original argument is simplistic, well enough. I think as Archetype put it this is a good way to state a real argument, maybe minimal.

            Dhavar, when I said that it’s your income which determines if your loan is repayable, I meant that your original example does not say anything at all about what your income actually is.

  • Rick

    Could the rejection of PM’s monetary reform proposals by the ICB at this time actually be to PM’s advantage ? I suggest this article by David A Jones might point us towards that conclusion.

    If we suppose the PM reforms were implemented today, then I believe most would see an improvement in real income for a limited period. This would of course lead to an increase in consumption of energy and resourses – that is generally what we mean by by an improved standard of living – by current definition anyway.

    Any reader familiar with the concepts of “Peak Oil” and “Peak Resources” will understand that at some point the rate at which fossil based energy and natural resources can be extracted from the Earth will hit a peak that will never be exceeded. (This has nothing to do with running out of resoures – it has a purely gelogical and economic cause) At this point supply will fall short of demand – leading to rapid price inflation – and then a recession. Many believe we are at that point in oil and very close in other resources.

    There is the suggestion we have hit both “Peak Oil” and “Peak Credit” at the same time and that this combination is the cause of the debt crisis. Should we suddenly increase demand (debt fueled) for resources beyond available supply, then a recession will follow, much as we have seen in recent years.

    My guess is that most people would expect to see a permanently improving standard of living following any ‘rescue plan’ and so any such plan would be totally discredited when the inevitable happens – the economy once again hits the buffers of resource constraints.

    I suggest better to wait until it becomes so patently obvious to most that the current system has totally failed them and is beyond repair. Then hopefully, the PM reforms, if implemented, would not be blamed for the effects of “Peak Resources”. Lets hope that is not too late to save our economy ?

    • David A. Jones (Guest Author)

      That’s an interesting argument you make. I have some serious reservations about it though. You write: “better to wait until it becomes so patently obvious to most that the current system has totally failed them and is beyond repair.”

      If “patently obvious” is taken to imply widespread breakdown of social institutions, transport systems, food production and supply etc. then I’m going to have to disagree with you. I think that waiting for civil society to begin collapsing around us, then seizing this “opportunity” for monetary reform would be an unwise strategy.

      By this point, most people will be frightened and clutching at human “straws”; any one of a noisy abundance of self-selected leaders pointing fingers at scapegoats. I feel that expecting a rational alternative to triumph post-economic crisis amidst such a cacophony of blame is unrealistic – recent European history supplies us with some sobering illustrations of this point.

      My opinion is that human societies are complicated and so we shouldn’t be trying to second guess their probable trajectories. Rather, we should try to do the best to move from where we are today towards something sane. If PM’s proposals were accepted we would be in a much better position to mediate any transition away from an oil-based economy. Such a transition may be impossible without inducing a debt-deflationary collapse under the present Fractional Reserve system, as it would probably involve substantial reductions to GPD.

      The future criticisms you worry about are probably inevitable; we will just have to cross that bridge if and when we come to it. Having reached the point where the public is educated enough on monetary matters to favour the PM system, they will hopefully be more than capable of rejecting such criticisms as invalid.

      • Rick

        I believe your article was a positive inclusion on the PM site as up to now my only reservation has been the lack of connection between energy/environment/economy/money. I believe they are essentially interdependant and inseparable.

        I did not anticipate waiting for total chaos to come knocking at the door and have to agree with you that by then it would be too late to save very much. In the end, any monetary reform will have to be forced via the ballot box and I very much doubt it will be by any inspirational leadership from any current party leader. The problem for them is that to acknowledge that GDP has to decline is to cast doubt on the future of the golden goose of FRB debt/credit creation for the City. Not good for one’s future political career ?

  • Dhavar

    Dozy Hole:

    Banks create money by:

    a) Making Loans
    b) Purchasing assets (Assets may be Bonds, Shares or a building). When banks create money by purchasing shares of, say, coca-cola company, they add up the price of the shares to the bank account of the seller of the shares.That money, as in the case of a loan, did not exist anywhere else in the universe prior to entering the bank account of the shares seller.This money, unlike the case of the loan has not to be given back plus interest to the bank and so be destroyed in the end.It remains in the system.
    This second way to add new money to the total stock of money is a bit out of the picture.And I would really want to know what its proportion is compared to the creation of money through loans.
    In case this second source of money supply did not exist, then the difference between money supply and total debt outstanding shown in the post graphics would be exactly the interests.
    The reason it is not is the second way of creating money.
    The reason it is quite bigger – debt to money supply- shows that the creation of money through loans should be much much bigger than the creation of loans through assets purchasing.

  • androo

    I’m not sure which of you is supporting the general thrust of this PM campaign and which not. Being fairly interested in these matters I went to the website posted by Nic The NZer – very technical, doubtless of interest to the three of you. This is a campaigning website – it seems to me that the point of it is to spread and popularise the idea of PM. To do that they must be expressed and debated in as clear and striaghtforward a manner as possible. I’m not sure that having this, what seems to me, arcane debate helps. I’m not sure that the general reader will even see it as relevent to the topic of the article it follows and so it will just confuse them. Can’t you have it somewhere else?

    • John Morrison

      I agree. We are constantly getting lost trying to figure out the exact rules by which banks work. The real rules are:

      Give the public a sheet of apparently balancing assets and liabilities that defies any kind of coherent analysis.

      Do whatever you can get away with.

      Try not to embarrass yourself or other banks by pushing it too far.

      If you do push it too far then explain that the public interest depends on your good health and get get the public to make good your embarrassing lack of real funds.

      The theory of Fractional Reserve Banking is the politest way of justifying this. It makes the fraud of credit multiplication look like the natural consequences of a set of rules. For the most part those rules don’t exist, are not enforced and are not necessarily followed.

      Once you accept the fraud of lending out someone’s money while pretending that they still have access to it then you have fraud throughout the system. The exact rules are irrelevant and you cannot really expect them to be coherent when they are based on fraud.

      • Dhavar

        I can not express how much I do agree with you. I would only add: One you let any private group to benefit particularly from the power of money creation, which in itself has been created by the whole society by accepting such means of payment, EVERYTHING is absolutely unjust, corrupt and ready to be enslaved by that particular group, no matter if they are called banks or whatever.

    • DozyHole

      You might be right Androo, this site does have a forum but there are a lot more debates on this blog, hence why I visit here more often.

      I think everyone who has posted here so far is in agreement with the positive money proposals, I suppose we just like discussing the details:)

      I also agree with John and Dhaver, the current system seems perverse when you first discover how it works, then on inspection it becomes apparent that it is indeed perverse and your initial reaction was correct.

  • Dhavar

    Dozy Hole:

    Sorry, I made a mistake in the las lines of my previous comment. It should read:
    ” The reason is quite bigger – debt to money supply- shows that the creation of money through loans must be much much bigger than the creation of MONEY through assets purchasing”.

  • Shillwatcher

    More debt needs to be created year-on-year for the current system to be sustained or else it deflates into oblivion.

    We are in a debt/war paradigm. The sooner you realise that we are debt-slaves to international crooks that control most governmetns the better we’ll all be.

    We are already at the point that the serfs DON’T WANT any more debt, and as the currency supply NEEDS to expand year-on-year the only alternative for the crooks-in-charge is for the central banks to pump out more dent-based currency.

    Quantitative easing is the ‘end game’ of this particluar venture into fiat currency. The lender-of-last-resort – the central bank, and the borrower-of-last resort – the central government will now dominate the economy untill either we are complete slaves to the banks or the system implodes.

    Lets hope it’s the latter.

    Got some silver, yet? I suggest that you do.

    • Dhavar

      Commodity money is also “fiat money”. Fiat – let be- is a legal word that was used to declare some legal disposition had been enacted, like in Genesis “let belight.
      It was used precisely by the Roman authorities to declare a new emmision of money was being enacted, and the exact formulae they used was : “FIAT NUMMUS” (from nummus means numbers).
      The proof: By a legal declaration Gold and silver ceased to be money. By another binding declaration they may or may not be declared money.
      There is nothing special in the atoms of such rather stupid materials.
      What is REALLY special is the monopoly control worldwide of such materials by the very same crooks you have referred to.
      And, since there is not enough quantity on earth to cover commerce, ALLL supossedly Gold moeny systems have been in fact paper systems and have produce the illusion that money need to be backed by something “useful”, whcih is not understnad that the usefullness of milk or wood is quite different than the usefulness of money.
      The only thing that gives to anything the property of being money is that it is universally accepted as a means to cancel payments and pay taxes, being such acceptance expressed in the leagl tender laws.
      Thus, it is created by all and each of the members of a society and therefore it is a strict embezzlement to allow ANY private group the privilege of producing it as their own property and for their own private benefit and so divest such society of what belongs to it by its own nature.

      • Dhavar

        Historically, – and referring to the current western world, because it hs happened also in the antique world in some instances – the full consummation of the said above society spoliation by a band of crooks was the fundation of the Bank of England, that, among other things required the coup d´etat called Glorious Revolution that put in the english throne a foreigner ruler, william III of Orange that gldly afterwards aproved the statutes of the Bank of England in 1694.

      • Shillwatcher

        “The proof: By a legal declaration Gold and silver ceased to be money. ”

        No, Dhavar, they ceased to be currency, or the de-facto medium-of-exchange. Money is often defined as having a ‘store of value’. Clearly £sterling is not money using this definition.

        The criminals-in-charge don;t care if society use paper, gold, or silver so long as they have the power to issue and control it.

        When the elite banksters had all the gold, Lincoln used paper to cut out the parasite banksters – at least until they shot him.

        The elite banksters have little gold ans silver these days so we should ditch paper and use gold and silver. Simples.

  • androo

    Hi Shill,

    Anyone who had read this site would be aware, in more measured language, of the points that you are making and doesn’t need you to make them again in apocalyptic tones. If you are generally in favour of PM having read the site, I am, then fine and good. Vote for whoever looks like they might introduce it.

    If this were Amazon I would likely be clicking the button that says your contribution does not add to the conversation. You also probably damages the cause by spooking the horses (I don’t think they have a button for that – perhaps this sort of site should have).

    I also like LVT and Tax Justice Network (though LVT and PM may render the latter less necessary – some hope…).

    • Dhavar


      Who do you think you are to ask for censorship and control of conversations and debates? Is there a little dictator in the heart of so many internet users?

      • John Morrison

        Dhavar – I don’t think you are being fair on Androo. He hasn’t asked for Shillwatcher to be censored or banned, he has expressed a negative opinion of his contribution and I think that is fair enough. The negativity of Shillwatchers contribution and his criticism of others makes him fair game for this.

        Shillwatcher has crossed what on many blogs would be clear lines of transgression:

        He gives us advice on how to invest our personal surplus wealth, This is not an investment advice column, it concerned with solutions that work for the whole of society.

        He represents another group the British Constitutional Group and is promoting their agenda. There is nothing wrong with some participation in this capacity, very often different groups are working towards the same broad ends but to occupy more than half the blogspace in this way amounts to a hijack.

        Personally I would like to see Shillwatcher have one last try at explaining where he is coming from and what he is trying to get across to us before he gets banned or is persuaded to give up.

        • John Morrison

          Shillwatcher now has a presence on the forum and that seems like the right place to go if you have a lot to say or really want to platform your position. The problem is that the forum is not very active. I think that is a shame so I am trying to engage him on the issue of gold. He is a gold advocate and I am not.

          I think gold is an important issue because there are many groups that see how we are being fooled by the current banking system but then place their trust in gold. Some are financed by gold merchants, some are right wing American survivalist type groups and some are sane reasonable people such as senator Ron Paul.

          • DozyHole

            I think taking any debate from here to the forum is a good move and hopefully more people will follow suit on other issues.

            The gold/fiat debate is worthy of more discussion I feel.

          • Dhavar


            Precisely I made I reply to Shillwatcher on the gold – commodity money issue but I ve not received any comment back.
            The central point with gold is:

            If we oppose that the current system gives a particular group the monopoly on money creation, – which belongs to society as a whole since society as a whole creates it- , with gold, silver, lead or whatever, whic by their own nature as private things MAY and certainly ARE and WILL BE an unassailable MONOPOLY, things are going to be even worse and besides they would be justified on theoretical grounds.
            History, from the Manu Code onwards shows overwhelmingly thst is always a tragic mistake and the cause of ruin and destroy for many empires and societies.

          • Shillwatcher

            @ John and Dozyhole: Yes, the commodity-backed/government-backed currency debate is essential for progress as it’s not a mere gold/fiat debate. It leads into the concept of decentralising currency supply.

            @ Dhavar: I’m not online 24/7. You asked me that question very recently, so don’t expect an immediate reply.

            @ Dhavar again: Yes, you’re correct about the insidious monopoly men that have plagued humanity for far too long. The currency needs to be decentralised to stop the government having a monopoly on the currency. This is a logical step, as is an outright ban on usury. The chemical composition or binary-code of the currency is irrelevant. The monopoly money men would be severely hindered without the ability to control currency.

            @ all of you: Yes, there is indeed a serious problem with the currency system. I always state currency rather than monetary, as money is often defined as having a store of value. As we observe history it’s quite clear that government fiat can and does fail – in fact all fiat currencies have ultimately failed – FACT. So if I’m direct, the situation calls for such behaviour.

            @Peter: No, I don’t represent the British Constitutional Group, although I favour their ‘L’ over the central bank to issuing currency. Yes, I am ‘fair game’ for any thing you wish to express.

            Seeya all on the forum – once I’ve figured-out how to get back to it.

  • David A. Jones (Guest Author)

    Hi all,

    I’m glad my article has sparked some discussion! I’ve been following the debate on the reasons behind economic growth you guys have been having. Here’s my take on it:

    My current understanding is that it is possible in principle to repay all the interest under fractional reserve banking (FRB). It is even possible in principle to have a “steady state” economy – one where GDP remains constant – under FRB. Apologists for FRB like to make these arguments and I believe that they are correct, in principle.

    However, from an environmentalist’s perspective (the people I wrote my article for), FRB has three key drawbacks when compared to the positive money (PM) system:

    I: A lot of interest payments must be made under FRB, since virtually the entire money supply originated as a commercial bank debt. This translates into a lot more economic activity being demanded for no sensible reason, much of it environmentally destructive.

    II: Making all these interest payments in practice depends on how effectively money is recycled and redirected back into all sectors of the economy. This recycling process is not perfect and moreover there is very little margin for error – the economy as a whole is insolvent, as the plot I included shows. Hence in practice further loans and further growth are quite likely to be necessary.

    III: A reduction in GDP will more than likely provoke a recession, for the reasons I outlined in my article. As such, in practice it is probably impossible to have a “stead-state” economy (or indeed to pursue any kind of “de-growth” post peak-oil transition strategy) under FRB.

    I think all three points are important reasons why people concerned about climate change, global biodiversity, transition and indeed human survival should oppose FRB. To me, it looks impossible to address such problems within “our” current monetary system.

    • David A. Jones (Guest Author)

      Compare my previous post to the PM system, in which:

      I: There will be much less interest to service: unlike FRB banks will actually lend money: there will actually be savers and borrowers! Debt will be a much smaller fraction of the money supply and so there will be a greatly reduced dependence on bank loans.

      II: The PM system is solvent by design! There will be no “too big to fail” institutions – if a handful of firms default on their loans, they won’t take the entire economy down with them.

      III: You can now engineer a reduction in GDP without tanking the entire economy, as there won’t any more be an economy-sized mountain of interest bearing debt to service, such that any reduction in the velocity of circulation of money or ready availability of loans induces a debt-deflationary collapse.


      • Rick

        Re: 111 I wrote to my local MP over a year ago to suggest that FRB/ debt based money was an obstacle to political / public debate over the problems posed by “peak Oil”. He wrote back basically saying he would approach The Treasury for their comment and would write back in due course. I am still waiting.

        Perhaps I am naive in thinking the subject was important enough to warrant an opinion ?

        • David A. Jones (Guest Author)

          I guess our long-term survival is just not very important compared to winning the next election! The degree of inertia in our political system is quite terrifying…

  • androo

    I just went to the British Constitutional Groups website. I had a look around the home page and read one article – “How they Control us- the Legal Fiction” or something like that. Mmm. Well LVT and PM don’t seem to me to appeal to conspiracy theories or other bogey men to account for where we are, it’s a historical process. Human actors do human things. For me another reason to support PM / LVT is that it doesn’t necessarily define you in terms of your preferred position on the libertarian/communitarian continuum so for me they look like plausible next steps for liberal democracy. But now I’m gettting off the point, aren’t I?

  • androo

    Though, you’re right Dhavar, he did ask for thoughts and that’s three times now.

    • Dhavar

      Thanks Androo. We have to be very watchfull with the trend spreading over the Internet as a plague – which Facebook and Google are enthusiastically promoting- that turns every Forum promoter , Blog writer and so on in to a kind of Mini Sect Leader.
      We have to discuss about everything as we do in a bar, in the streets, on a dinner or wherever.

  • John Morrison

    David A. Jones, you have brought it all together and summed it up very nicely.

    All I can add is that sometimes I think the phrase ‘Positive Money Proposals’ could be re-branded. It does sound kind of parliamentarian but very back room parliamentarian and we know that can go on for years with no effect. We need to re-brand it as ‘What needs to be done’ and build a consensus for that.

    I say this to you because your clear and concise analysis gives me hope that we have the power to do this.

    Androo, Breath ! You are no longer responsible for the last three post.

    • David A. Jones (Guest Author)

      Thanks John. I think you make a very important point – those involved in this campaign should put most of their efforts into trying to engage members of the public on the issue of money. Financial industry technocrats are paid handsomely to play devil’s advocate; we could spend eternity arguing with them and never get anywhere! The camapign will only succeed if enough members of the public get behind it.

      • David A. Jones (Guest Author)

        By the way, I really enjoyed your earlier post on “the real rules” of FRB. Satire is a powerful weapon this campaign could use to engage people on the issues.

        • John Morrison

          Did it come across satirical? I was trying to be precise.

          • David A. Jones (Guest Author)

            Haha. To (mis)quote Mark Twain: “No satire of banking could reach perfection, because banking occupies that summit itself” it is “satire incarcerated”.

      • Ben Dyson (Positive Money)

        David – absolutely agree. We’ve just had this discussion in the office as well, after meeting a well-known and well-respected economist who refused to even comment on the money issue because he was a ‘micro’ guy and money was apparently macro-economics. With this level of ignorance amongst professional economists, the only way forward is to focus on the public.

        • Dhavar

          No so absolutely. When I first met PM – I live in Spain -, precisely what gained my respect and even admiration was the carefull analysis ,research and refutal of fake though so widely spread arguments it was producing on this most serious af all issues.
          The devil´s advocate are absolutely necessary.
          Or then what you will have is a yelling croud only repeating dogmas and slogans that will be shut up, ridiculed and destroyed by a mere stroke of sophistry by “well paid technocrats”.
          So, one thing is to have sound, strong and clear arguments and quite a different thing is turning PM into kind of yet another pathetic freak sect – perhaps the embrio of yet another “party”, as conscious of its virtues as unable to produce that “critical mass of thought I ´ve read was your main target.

          • John Morrison

            Positive Money may be in danger of being dismissed as a parliamentarian obscurity but it defends itself very well against any accusation of being yet another pathetic freak sect. Taking the message to the public does not mean that it has to be packaged as a party political organisation. It requires arguments that the public can understand and relate to as something quite close to what they might have thought themselves.

            Most people think that nations issue money and banks are brokers between those who want to lend and those who want to borrow or at least think that is how it ought to be. It is important to connect with public intuition because ultimately it is the only basis for achieving a critical mass of realisation. Only strong public consensus will bring about these reforms. It is perilous for politicians to act without this and they will not.

          • Ben Dyson (Positive Money)

            John – very valid points. Change has to come from the government, and to get them to support this, we have to put them on the wrong side of public opinion. So the first priority has to be to change public opinion and get the message out to a good few million vocal people.

            We’re doing a lot of work on simplifying the message and finding better ways to communicate it. We’re a bit snowed under with events until mid-November but will have made some significant changes in strategy by the end of the year (which is only about 10 weeks away!)

          • Ben Dyson (Positive Money)

            Dhavar –

            1. Re Devil’s Advocates, my colleague Drew Jackson will shortly be taking all the arguments in defence of the current model of banking and showing how many of them no longer stand up. We don’t deny that there are some advantages from the current system, but we think you can get the same benefits at much less cost from a different system, without the costs.

            2. My current thinking is that the public need to understand money at a pretty deep level. It’s not just slogans – we need some real education. The issues of who creates money, how much they create and how they use it should be taught in schools, but as it’s not, we’ll have to find another way of getting the message across.

          • Dhavar

            Yes.As I´ve said, PM is doing the right thing.If the matter has been deliberately obscured, there is no other way than to understand “at a pretty deep level”.
            I´ve studied for many years monetary history.
            And what is really good in PM is that you have gone to the bottom of the nasty details without getting entangled in yet another jargon driven proposal.
            Your thesis are absolutely right.I would so much wish there were such a source of clear and sound information here in Spain.
            What I wanted to point out is the danger of trying to simplify too much to reach more people and then be defenceless agaisnt the money establsiment arguments.
            The difference between a day of rage and a revolution is arguments.(“fire” is common to both)

  • John Morrison

    Dhavar – I live in Spain too and I think it would be good for the 15- M movement and Positive Money to become more acquainted with each other.

    The 15- M movement is not anarchists trying to bring down the system, it is people that value their democratic and social institutions and want to see them working properly. They want jobs and they want their jobs to make sense. They are opposed to the socially destructive effect of cuts in government spending and insist that the government finds another way. The problem is that they do not present the public with much idea of what that other way is. They do campaign for sensible changes at a European level but they present little idea of what a nation can do alone.

    The situation in Euro zone countries is complex. They cannot issue any Euros themselves, they have to borrow all of them from private lenders. If they leave the Euro and issue their own currency as legal tender then this will dishonour their Euro obligations and leave them economically ostracised. They are damned if they stay and damned if they leave.

    Do we have some ideas about how they can achieve some monetary sovereignty to secure their internal economies while living with the Euro ?

    I am thinking of a nationally issued supplementary currency that could circulate alongside the Euro occupying perhaps 20% of the money supply.

    • Dhavar


      I think it would be very interesting to meet each other and exchange data and ideas. Regarding 15-M, it has been co-opted from the very first days by the Socialist Party and hence, it is now firmly classified as the “riots” section of such party. The same that has happened with Tea- Party &Republicans- Occupy W Streeet &Democrats.
      The archetype model for this partisan tactis was very accurately described in the great movie “Meet John Doe” (Capra &Gary Cooper).
      If you think interesting that we meet and share a beer, you may find my email on the profile of

      • John Morrison

        Dhavar, I have sent you an e-mail

        It may be that within the 15-M movement many movers are traditional ineffective lefties but nevertheless the support for the movement represents a positive social aspiration. Although leaderless, the broad demand of the movement is that existing institutions work properly and are not undermined by corruption. It is hard to argue with this, the only thing that is missing is the monetary sovereignty necessary for a country to properly finance its own internal activity It is there that maybe we can offer some ideas. People, including 15-M supporters are very scared of leaving the Euro, even though it condemns them to bleak austerity.

        • androo

          I think I may defend Shillwatcher, or at least give him the benefit of the doubt. I’ve only just discovered this place, Keiser is a laugh (in the English sense), in the US sense you might say a riot. He’s seems to be aware of the arguments going on in places like this but has moved on, perhaps I mean sees a bigger audience. I don’t know what I mean except that we must tell people and they must understand. Every big shift disappoints the purists, I’m sure this one will too, but to get more of what we want that what we don’t the message must get out. Keiser advocates buying silver for example – I think it’s tactical. His guest (todays show I think) congratulates and praises those occupying Wall Street this week. They have the right target at last, now they need a coherent agenda. Keiser is, to say the least, provocative, and if you didn’t see the smile on his face could easily be misconstrued. He doesn’t really think we should guillotine the bankers now does he. What do you say Shill?

          • androo

            My last comment worries me. Already I am talking the shorthand that only those who spend their time on websites like this understand. It’s just no good.


            and this site, oh and,

            Taxjusticenetwork too.

          • Dhavar

            This guy Keiser makes a good show.Is a satirist, and satire and pampleths have always been excellent political means.I wonder how many know that what in fact M. Antoinette said was (referring to the people not having bread):” Well, then, they should eat cakes”.She definitely was one in the 1% per cent.

    • angelabrady

      Hi John – I also live in Spain and am keen to make contact and join forces with others to help get the Positive Money message across in a way that strikes resonance with the reality of Spanish people at local level – that means the solutions and supporting evidence need to be wholly relevant to the Spanish economy, within the context of Europe and its monetary union. 

      People also need to be able to make sense of what’s going on with the Cajas (building societies) – one minute they’re there, next minute they’ve been forced to merge and transform themselves into bigger banks, and now the financial instability of these newly formed institiutions – particularly Bankia here in Valencia – is never out of the news. To whom, now, should socially concerned people here in Spain entrust their wages and savings?

      From my own perspective I see Spain as a unique country, an amalgamation of regional autonomies each with its own unique sense of identity that may integrate it or set it apart from the nation that is Spain. It is a young democracy with an institutional rigidity that’s difficult for many Britons to comprehend.  Socially the wounds and divisions of dictatorship, buried for decades under a pact of silence, are only just beginning to resurface in public. These wounds may be unknown to younger generations but they have by no means been forgotten, nor forgiven, at institutional level.

      In my own experience, social movements tend to become politicised extremely quickly and, here in my own community, I’m witnessing political parties, unions and regionalist movements seizing the opportunity to latch onto or monopolise even the smallest public protest against austerity in order to further their own particular agendas.  

      My own approach, then, has been to quietly educate others as best I can by sharing my own learning, listening to and learning from other people, and engaging in constructive debate. 

      I’ve been asking people most recently what they think about Europe and the Euro. The vast majority really do embrace the idea of a united European society but view the Euro as wholly negative – when it was introduced they remember that prices went up but wages didn’t, so their overall standard of living went down. Most say that given the choice they’d go back to the peseta tomorrow – this, of course, under the illusion that everything would go back to how it was before.  

      Where I’m really struggling, however, is in getting people to imagine something different. I believe this is largely because, no matter how integrated I might consider myself to be, there’s no escaping the fact that I’m not Spanish and I didn’t grow up in this society – “But that would be impossible in Spain” seems to be the standard response.

      Any pointers you could give me would be greatly appreciated.

    • E-J

      great idea John! Graham Barnes from Feasta is a currency designer who holds a very similar viewpoint on this topic and has a fascinating blog on “intentional currencies”. If you are serious bout this I recommend you contact him as I know he’s interested in setting up something that makes a real, positive impact:

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  • Tim Holt-Wilson

    Hear hear!

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