The nature of money
Essentially, money is a form of property. Your money is your money, mine is mine, otherwise money has no meaning. Money is property in the abstract. The most interesting example of money as pure property is the stone money of Yap: some large stones sank in the sea generations ago while being carried from one island to another; but they are still acknowledged as money. It is irrelevant that they are at the bottom of the sea; everyone knows who owns them. The stones are exchanged for other property – even though they sit on the seabed.
To be useful, of course, money must have some recognisable form. At different times and in different places it has been gold coins, shells, tobacco, salt, paper notes, stones with holes in them and many other things. Today it is mostly numbers in bank ledgers, which can be substituted with notes and coins for convenience: convenience is a supremely desirable quality in money. Today’s forms of money are not in themselves fraudulent: numbers, paper and coins do not have to be created as debt. But because they cost almost nothing to make, they are an ideal vehicle for fraud: they can be created, destroyed, and created again at little expense.
The fraudulent aspects of today’s money are add-ons to its basic quality as money. First, bank-money is rented out to us at interest; second, it is created (and destroyed) for the profit and benefit of those in power; third, it is created and destroyed without public scrutiny, oversight, or debate: in other words, without any reference to the public interest.
The fraud in bank-money has been noted time and again by individuals, many of them historically significant, without their opinions ever being firmly established in public debate. Here are a few examples (many more may be found in other chapters of this book):
- John Adams, 2nd President of the United States:
‘every bank of discount, every bank by which interest is to be paid or profit of any kind made by the deponent, is downright corruption. It is taxing the public for the benefit and profit of individuals.’
- Thomas Jefferson, 3rd President of the United States:
‘If the debt which the banking companies owe be a blessing to anybody, it is to themselves alone, who are realizing a solid interest of eight or ten per cent on it…. The object… is to enrich swindlers at the expense of the honest and industrious part of the nation.’
- John Taylor, U.S. ‘founding father’:
‘Banking in its best view, is only a fraud, whereby labour suffers the imposition of paying an interest on the circulating medium… the aristocracy, as cunning as rapacious, have contrived this device to inflict upon labour a tax, constantly working for their emolument.’
- Adam Smith, economist:
‘A particular banker lends among his customers his own promissory notes, to the extent, we shall suppose, of a hundred thousand pounds. As those notes serve all the purposes of money, his debtors pay him the same interest as if he had lent them so much money.’
- Frank D. Graham, economist:
‘So far…as the totality of bank promises becomes, and remains, part of the currency, the promises are never called and the bank is in the delightful position of living on the interest of what it owes.’
Nor was this knowledge hidden from the general reading public. For many years, if you looked up ‘Banking and Credit’ in the Encyclopaedia Britannica you would find the following paragraph:
‘When a bank lends… two debts are created; the trader who borrows becomes indebted to the bank at a future date, and the bank becomes immediately indebted to the trader. The bank’s debt is a means of payment; it is credit money. It is a clear addition to the amount of the means of payment in the community. The bank does not lend money.’
Reforming the Law
Because the fraudulent qualities of bank-money are add-ons to its performance as money, reform would simply consist of removing those add-ons. It would mean repealing laws that support the buying and selling of debt – much as the laws which supported slavery were repealed in most countries, after many years of struggle. After that, debt would be once again a private agreement between two persons, and law would only commit the State to help recover a debt if the claimant made the loan in the first place. This would remove legal support for bank-money, derivatives, bonds and many other debt-assets.
After reform, money would look exactly the same as it does today – numbers, notes and coins; but instead of being owned as debt, it would be owned as simple personal property. Each unit of existing money would be legally recognised not as debt from a bank, but as a piece of ‘unencumbered’ property.
This would take care of one-half of the debts created by banks – the debts from banks to ‘depositors’. The other half – debts to the banks – would remain. If the latter were left intact, the result would be the greatest windfall of all time – to the banks: their own debts abolished, debts to them still extant. Joseph Huber makes the obvious suggestion: that those debts should now be owed to the government, which could use the repayments as expenditure, reducing the need for taxation. Some small recompense for taxpayers and the indigent, after centuries of being robbed!
As for the immense pools of money created by banks over time, should all of it be recognised as ‘pure’? Or should there be a progressive reduction in the amounts eligible for conversion? The danger in making any politically-motivated reduction would be that money would rush, prior to reform-day, into other forms of property. Looking at it from the point of view of a just money supply, however, it seems wrong that these fruits of robbery should remain fully intact.
There is a historical precedent for reduction in the money supply, and it is the most startling single event in economic history. After World War Two, Germany was in a situation in some ways similar to (though far more extreme than) the situation we have today. Vast amounts of credit had been created by the German government, and used to make war and reward its supporters. As a result, the economy was in sclerosis. Economic activity had ground to a halt; people were hungry and living hand-to-mouth. The currency reform of 1948, instituted by the U.S. occupying forces, simply abolished over 90% of money-wealth and distributed free money to each household. The result (literally overnight) was frantic economic activity. Soon, however, the cycle began again; for there had been no fundamental reform, only adjustment.
There are earlier, more fundamental precedents for turning back the clock on forms of negotiable debt. Solon set the stage for the Athenian experiment in democracy by putting an end to debt slavery. The Roman Empire prolonged its existence for centuries by putting tax-farming on pause (early 1st century C.E.). We could begin a genuinely democratic future by ending today’s global tyranny of bank- and government-created debt.
Reforming the regulations
Many advocates of monetary reform do not recommend an end to negotiable debt: they want to adjust the regulations, so the system still works, but more in the public interest.
Their reasons for limiting reform in this way are various. Some wish to keep the power of created credit/debt alive, hoping to regulate it so that it is socially useful (‘left’) or efficient and profitable (‘right’). Others think that a fundamental change to the laws would be impossible: it is surely enough of an uphill battle to try and reform the regulations! Still others worry that unless large amounts of money can be summoned from nowhere, the kinds of massive infrastructure projects which the modern world needs will be impossible.
Whatever their reasons, many reformers focus on making the money-creation system more just, and less damaging. The kinds of change they recommend can be summarized under various headings. These changes are recommended by different reformers, sometimes in combination:
- ‘National banks of credit’: the idea here, is that state-owned banks would operate alongside (and in the same manner as) commercial banks; but instead of lending purely for profit, they would lend to projects with a social benefit. Banking profits would go to governments, thereby reducing taxation.
- 100% reserve. The idea here is that banks would be obliged to keep as much value in reserve as they create in loans. If reserve was gold, this would mean keeping stocks of gold. Now that reserve is numbers loaned or sold by the government, it would mean a source of revenue for government. Many 100% reservists advocate going back to a reserve of gold, whose value would depend less upon private and/or government manipulation. The aims here are financial and market stability, and less profit to creators of credit.
- Free banking. Any private business would be free to create money; the marketplace would determine which currencies would be successful. Most free-bankers favour a gold reserve. Some free-bankers wish to see money loaned into existence; others would prefer that only pre-existing money be loaned. The common aim here is to reduce ‘crony capitalism’ – the damaging relationship between government patronage and wealth-creation.
- Sovereign Money. The idea here is that the money-supply should be created by the state, not by private banks; and as pure property, not as credit (with the possible addition of a state bank that issues credit for public works). Non-credit money would be permanent, so more would only be created as the economy expanded (and conversely, destroyed if the economy contracts).
- An expanded role for community currencies, supplemented by credit-clearing circles based on actual goods and services. These systems already exist, but have been side-lined into relative insignificance by the dominance of bank-created money. Credit would no longer be created out of nothing as interest-bearing debt.
- Simple displacement of bank currency by externally-created digital currencies such as bitcoin, backed by the open ledger system of recording transactions (‘blockchain’).
- Changes to accounting rules, so that banks may no longer count debts to themselves as assets.
- Access for everyone to accounts in reserve money – digital cash – at central bank accounts. At present only banks and a few other select financial institutions are allowed accounts at central banks, The Bank of England is researching the possibility of ‘central bank digital currency’: in its own words, ‘a universally accessible and interest-bearing central bank liability, implemented via distributed ledgers, that competes with bank deposits as a medium of exchange.’
The two websites which have serialized this book, those of Positive Money and the Cobden Centre, take different approaches to solving the problem of how to achieve a money supply that is more just, more efficient, and more stable. Positive Money favours 1, 4 and 8 of the above proposals; the Cobden Centre is keener on 2, 3 and 6. Both, I believe, would look kindly on 5 and 7.
[sws_blue_box box_size=”630″] These are the personal views of the author, they don’t necessarily reflect the views of Positive Money; they are intended to stir up the debate. [/sws_blue_box]
 Letter to Benjamin Rush, August 1811. Life and Works of John Adams, Boston 1854, vol. ix, p. 638.
 Letter to John W. Eppes, 6 Nov. 1813.
 An Enquiry into Principles and Tendency of Certain Public Measures, 1794, p. 18.
 Wealth of Nations, Book 2 Chapter 2.
 14th edition (1929) & 15th edition (1951). The article was written by Ralph Hawtrey, an English economist.
 Joseph Huber, Sovereign Money (2017)
 Alan Kramer, The West German Economy, 1945-1955 (1991). The monetary reform abolished the wealth of savers. Further reforms to reduce the wealth of great landowners and industrialists and ‘equalize the burden’ were, however, abandoned. The main difference between the two situations is that in post-war Germany, inflation was suppressed by rationing and wage and price controls whereas today, inflation is suppressed by the fact that most money is in possession of the rich, who are not spending it, but waiting to invest it.
 ‘The Roman state never had an adequate fiscal organization. Under the republic, it had farmed out the collection of taxes to private bankers. These abused their position not so much by extorting more than was due in taxes as by lending money at extortionate rates to permit the communities to pay their taxes in anticipation of their own collections or during periods of financial stress. Because of the evils of this system, Augustus so curtailed it that it gradually vanished during the early empire.’ ‘Economic Stagnation in the Early Roman Empire,’ Mason Hammond, The Journal of Economic History, Vol. 6, Supplement (May 1946), p. 85.
 See for instance Ellen Brown, The Public Bank Solution: From Austerity to Prosperity (2013).
 The classic text is Irving Fisher, !00% Money downloadable at http://fisher-100money.blogspot.co.uk/
 Lawrence White, Competition and Currency (1992); George A. Selgin, The Theory of Free Banking (1988) downloadable at Liberty Fund.
 See Positive Money publication DIGITAL CASH: Why Central Banks Should Start Issuing Electronic Money by Ben Dyson & Graham Hodgson (2016); and Joseph Huber, Sovereign Money (2017).
 Thomas H. Greco, Money: Understanding and Creating Alternatives to Legal Tender (2001).
 Jonathan McMillan, The End of Banking – Money, Credit and the Digital Revolution (2014).
 Bank of England Staff Working Paper 605 (2016) proposes a form of ‘digital cash’ to be created as debt: downloadable at http://www.bankofengland.co.uk/research/Documents/workingpapers/2016/swp605.pdf