The past hundred years have brought us unprecedented development, especially through ever-evolving technology. In consequence never in history have so many people have lived so well. Yet our society and humanity as a whole are facing huge problems. Since the 1980s lower and middle incomes have barely risen, despite the fact that technology and productivity have continued to develop. The benefits of this development are going mostly to corporations and to the highest income groups, leading to an increasingly large and still growing gap between rich and poor. Especially after the 2008 crisis persistent unemployment and declining livelihoods are leading to impoverishment, with major social and psychological consequences. On top of that people are faced with higher costs of and decreased access to public services such as health care and education.
In addition to these economic and social problems there are enormous environmental challenges: climate change, the depletion of natural resources, the destruction of nature, pollution, growing water shortages, the loss of agricultural land. Problems which are already making an impact, especially in the form of extreme weather, but which will hit much harder in the longer term. In order to prevent this we have to start addressing them as soon as possible.
Lack of money
A key element in the failure to address these problems is money. Ask our politicians to effectively address climate change: no money. Investing in energy efficiency and renewable energy: no money. Nature and environment: no money. But also: better and cheaper education: no money. Employment programs: no money. In other words, there is, at least at this time, no money for those things that are important to the quality of life for present and future generations, such as good public services, a clean environment and the responsible use of natural resources.
All things considered, it is strange that we do not address such important problems due to lack of money. After all, money can, in principle, be created at will. Most money is electronic: it does not even exist physically. Tangible money, coins and banknotes, form only two to three percent of the total money supply. The remaining 97 percent goes under various names: deposit money, bank money, scriptural money and more recently, electronic money: it exists only in the memory banks of computers. Of that we can create as much as we need: all it takes is a few keystrokes on the right computer.
In practice there are limitations to creating money, such as the quantity of goods and services the economy can produce. But if, as has been the case after the 2008 crisis, production is much below that capacity it would appear logical to create money to garner the underused capacity of our economy to address society’s challenges. Doing so would have the additional advantage of triggering the private sector investment and job creation that would help overcome the economic crisis.
It doesn’t happen. Production capacity remains unused, problems are insufficiently addressed, and the crisis continues. Companies go bankrupt, unemployment remains high. The explanation for this lies with the way money is created presently, with the current monetary system.
Understanding our monetary system
The concept of money and the way our monetary system works are not well understood. This applies not only to the average citizen: even specialists, such as economists and bankers, often have a false image. That’s understandable to some extent, considering the comment of the British central bank, the Bank of England, that many economic textbooks give a false image of how money is created.
Without some insight into how the current monetary system works a discussion about whether and how we should improve the system is difficult. Therefore this booklet tries to explain in as simple a manner as possible how the current monetary system works, how it originated, what’s wrong with it, and what should be done about it.
Questions we should ask
The starting point for our explanation consists of two questions – with brief introductions. First: our society is facing huge environmental and social problems that threaten the welfare of billions of people, now and even more so in the future. The main reason these problems are not addressed on the required scale is lack of money. The question is: how is it that lack of money, the only resource that can be created at will, forms the main obstacle for addressing effectively society’s problems? The second question is: what can we do about it? How can we ensure that lack of money is no longer an obstacle to tackling these problems? It is these two questions this booklet aims to answer.
This was the 1st chapter of the booklet “Our Money” by Frans Doorman, author of the books Crisis, Economics and the Emperor’s Clothes, Global Development: Problems, Solutions, Strategy – A Proposal for Socially Just, Ecologically Sustainable Growth and The Common Sense Manifesto.