Although ‘pure’ (sovereign) money would seem pretty much the same to people using it, it would behave differently from bank-money in a number of interesting ways.
First, money could no longer sit in a bank and command interest: it would have to be lent for some purpose, and at some risk before it yielded a profit. Today, banks pay depositors to let their money sit idle because it maintains their supply of ‘reserves’. Without reserves, a bank cannot function in today’s system, in which banks compete and cooperate (a monopoly banking system would not need ‘reserves’).
On the other hand, transferring money would become relatively simple and cost-free, because it would mean no more than transferring a number between ledgers. Transferring bank-money today is complex and expensive for banks, requiring a great deal of ancillary activity.
Second, the quantity of money in circulation would remain much steadier, and be much more controllable. Money would no longer be destroyed when debts to banks were repaid, so a great deal less would have to be created. In today’s system, huge amounts of bank-money are created when the mood is optimistic; huge amounts are routinely destroyed when loans are repaid to banks, and also when pessimism strikes and banks call in their loans. ‘Pure’ money would remain in circulation, and its amount would be controlled by public decision-making, not by private profiteers.
Third, the profit in making new money would be ‘one-off’. The profit in making ‘pure’ money has always been one-off: coining gold; gathering shells; growing tobacco; making holes in stones. After its creation, ‘pure’ money is in lasting circulation.
Fourth, borrowing would involve human, and therefore more moral, decision-making. Borrowings would be of money which already exists, from individual humans. There would no longer be amoral corporations setting rules of pure profit, guiding loan-creation. A bank is legally obliged to create and lend money purely on the criterion of the profit it will yield. Private humans, when lending money, have all kinds of motives, and often profit is not even one of them.
Fifth, money would no longer siphon wealth from the working to the wealthy. As already pointed out, the kinds of individuals who gain great wealth and power in our present system are not distinguished by great intelligence, sagacity or skill, so much as by a common lack of concern for the results of their activities. The great tragedy of our civilisation, pointed out again and again by commentators of many different persuasions, is that the moral element is no longer influential. A restoration of morality in our economic and political dealings would be transformative.
Sixth, the whole behaviour of money would be simpler to understand, not only for the general public (see below under ‘Democracy and the Money Supply’) but also for politicians and workers in financial services.
Where reform might take us
For better or worse, one of the main engines of human activity is money. ‘For better or worse’ is no mere phrase: money can act for good, enabling interchange and prosperity, or it can act for bad, funding exploitation, destruction, and misery. In other words, it can either enable, or disable, human aspiration.
The ideals to which most of us aspire – freedom, democracy, peace, justice, living together in harmony – are impossible when the world is owned by so few and managed by their corporate servants. Freedom depends upon widely distributed ownership, rights, and law that is seen to be just. Democracy means active ‘rule by the people’, not just choosing every few years between well-financed and powerful factions. Peace depends on governments acting on the desires of citizens not to have their homes blown to pieces and they and their children killed, not on ‘economic’ goals set to profit those in power. Justice becomes possible when law is created and administered for all, not skewed in favour of certain interests. Living in harmony emerges when communities are aware of laws and their consequences – not when law-making operates beyond the notice of most citizens. Finally, ever-increasing inequality must lead eventually to unrest and dictatorship, as the poor majority reaches the end of its tolerance and looks to some thug for deliverance.
Reform would make it possible for the ideals listed above (and many other good things) to take root and flourish. How many of the evils and malaises that affect our human world have their origin in inequality? Inequality of wealth brings with it other inequalities: of freedom, opportunity, moral choice, pursuit of health etc. Humans are social animals and instinctively moral (unless defective, as Darwin explains at length in The Descent of Man). When we are obliged to behave in destructive ways, and deprived of our moral freedom to look after common interests, mental distress naturally follows. The authors of The Spirit Level trace connections between economic inequality and a host of evils such as crime, drug addiction, mental health problems, broken families, violence, obesity and other dysfunctions.
Money would be gained in exchange for work that contributes, not for legalized misappropriation. Ordinary citizens could begin to regain control of their lives, and of the world we live in.
Wealth would be more widely distributed. Wide distribution of money and power would transform our world. At present, money and power are concentrated in the hands of a few people who devote their lives to getting them. In other words, they are concentrated in the hands of the wrong people. For civilisation to survive, lust for power and money should not be systemically subsidized. ‘Now power is in itself evil, no matter who wields it. It is not constant or dependable: it is a lust, and therefore insatiable, unhappy in itself and bound to make others unhappy too.’
In a ‘pure money’ economy, prosperity would increase. What evidence is there for this assertion? Prosperity today is provided by machinery, technology, entrepreneurship, human labour and free markets – not by the efforts of a few people to own the world. With too much inequality, spending dries up, and bank-money fuels inequality. A healthy economy is in a healthy balance between money being used for exchange, and money being stored for future use.
The immense complexity in money and finance today would disappear. Everyone could begin to understand the workings of money; which leads directly to…
Democracy and the money-supply
‘Democracy’ was traditionally understood to be rule by the not-so-well-off, because the not-so-well-off are always in the majority. But today’s ‘democracies’ are dominated by the rich. There are some reasons for this discrepancy. First, what we like to call democracy – electoral representation – is in truth not very democratic. Second, most voters are in the dark about laws and practices that favour wealth.
It is hardly surprising that the powers of politics and money are attracted to each other. As powers they are complementary, and if they cooperate their powers increase in tandem. The days of pure competition for power between ‘left’ and ‘right’ are over.
Many of the ways in which our financial system corrupts the democratic process are obvious and well-known – lobbying, corruption, revolving doors, tax concessions, et cetera, et cetera. But perhaps none is more important than its being a hidden obsession which dominates the electoral contest. For a long time now, elections in most countries have tended to lurch alternately between parties of ‘left’ and ‘right’. The reality is that ‘left’ and ‘right’ are two wings, state and private, of the same (corporate) vulture. When money is issued as debt – and called credit – by commercial banks, citizens live with kleptocracy; when money is issued as credit by the State, citizens live with totalitarianism. In a ‘mixed’ economy, citizens lose progressively to both ‘left’ and ‘right’ wings. Today, the wings are renamed ‘neoliberal’ and ‘neoconservative’ and the vulture is more voracious than ever.
This is how money dominates the ‘democratic’ process to its great detriment. Paralyzed in choice between ‘left’ and right’, elections neglect the great problems confronting humanity: arms proliferation, weapons of mass destruction, environmental decline, inequality, destruction of homelands, the spread of fascism.
It was a sad day when the framers of the U.S. constitution could not agree on rejecting banks as currency-creators. The value of a constitution is that it enshrines certain principles in a simple, open document, available to anyone. Constitutions are taught and remain familiar across the generations, whereas today, ‘it is a melancholy fact that each generation must relearn the facts of money in the bitter school of experience.’
Conclusion: How Possible is Reform?
There is no point in belittling the problem. We live in a system that’s tailor-made to end civilization as we know it. At present, there seems little hope for reform. No powerful interest group wants it. Elites chase money and power – and bank-money fuels the chase. Nervous and dependent middle classes, frightened of rocking the boat, avoid thinking about uncongenial truths. Further down the social hierarchy, many are excluded, and others feel helpless, cowed or apathetic. Still others feel complacent, or assume they won’t be able to understand. Yet others are bought off with subsistence provisions and/or diverted by mass entertainment. The Roman Empire collapsed because no simple ideology of reform developed to reverse its drift to self-destruction. A similar situation exists today: a smattering of would-be reformers, powerless to do anything, is in any case divided over what should be done.
On the other hand, more people are becoming aware that the system is corrupt and kleptocratic. Banks are becoming increasingly – and more obviously – toxic drivers of inequality. Backed by state guarantees, they behave ever more greedily and irresponsibly. They invest more in asset-speculation than in productive investment. Their insolvency is becoming more obvious, more well-known, and more of a threat to the rest of us. This might be the right time for the insights of people like Jefferson and Adams (referred to above) to take centre stage. It has taken many years for their predictions to come true, but today they are undeniably valid.
Another factor pushing us towards reform may be that colonialism-by-money-creation, exploited for so long by the West, is now subject to competition from other powers. Will the West respond by noticing the predatory nature of these techniques?
In these circumstances, reform might begin to happen almost by itself. Today, payment systems outside banks are proliferating. At the moment, new payment systems use money created by banks, because there is no viable alternative. But as truth begins to seep out between the cracks, central banks are beginning to distance themselves from the results of money-creation by emphasizing that actually, they do not create the money supply.
The Bank of England, for instance, has announced its intention to give ‘non-bank Payments Service Providers’ access to its settlement system – the central payment ledger of the British economy, to which only banks have hitherto had access. One possible route towards reform is if central banks – or even just one central bank – begins to issue ‘pure’ money and allow ordinary people to hold accounts. A pioneering example of a new money system, avoiding commercial-bank-created money completely, might open the eyes of many to the possibilities of a more just and prosperous world.
And that would surely be a good thing.
On this, hopefully hopeful, note, the book ends.
[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]
 For a more detailed explanation, see Joseph Huber, Sovereign Money pp. 70-1 (note16). When debt from a bank (i.e. money) moves from one bank to another, ‘reserves’ move to square the accounts. Banks buy or borrow ‘reserves’ from central banks. Thus they pay out on their debts to each other; only the public is paid nothing beyond promises. Sidney Homer noted in his classic tome on interest rates that once banks adopted fractional reserve, ‘instead of charging a fee for deposits, they began to pay interest on deposits.’ A History of Interest Rates (1977) p.148. Benjamin Franklin also noted the same difference (Works, vol. 5 (1906) pp 12-14.)
 Joseph Huber, Sovereign Money (2017) pp. 64-67.
 Rulers did sometimes resort to desperate measures to profit a second time: for instance, Henry VIII recalled all the coin, diluted it with cheap metal, and reissued it.
 This taps into a long debate about the amoral demands of corporations. Johannes Andreae (c.1270–1348) argued: How can you trust a creature that cannot be shamed or punished? Maitland (1850-1906) wished to write a book on ‘the damnability of corporations’ before his life was cut short.
 In Keynes’ (somewhat hopeful and somewhat overstated) words, ‘The love of money as a possession – as distinguished from the love of money as a means to the enjoyments and realities of life – will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.’ From ‘Economic Possibilities for our Grandchildren’ (1930).
 Chapters 3 and 5 concentrate on ‘the moral sense’. The Descent of Man can be downloaded from many websites, for instance: https://ia902606.us.archive.org/7/items/descentmanandse09darwgoog/descentmanandse09darwgoog.pdf
 Richard Wilkinson & Kate Pickett, The Spirit Level (2009).
 Jacob Burckhardt, from Weltgeschichtliche Betrachtungen 1905.
 In The Name Of The People, Ivo Mosley 2013.
 Marx admired the power of capitalist credit-and-debt creation. The fifth plank of his Communist Manifesto was that it should be taken over by the State: ‘Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.’ The Nazis also took control of credit creation with banks obeying orders – or else.
 See Triumph of the Bankers, William F. Hixson (1993) Chapters 12 and 13; and ‘State-Issued Currency and the Ratification of the U.S. Constitution’ by Mary M. Schweitzer in The Journal of Economic History Vol. 49, No. 2 (June 1989), pp. 311-322.
 Maurice Allais, in Arrow and the Foundations of the Theory of Economic Policy ed. Feiwel, 1987, p. 491.
 Alföldy, The Social History of Rome (1988) Chapter 7.
 Privately-created digital currencies such as bitcoin are, at present, mostly vehicles for speculation.
 See note 2.