by Alistair McConnachieProsperity, May 2002

Just as we need government for the people, and by the people, so we need money for the people, and by the people.

Money Reformers advocate essentially two things – firstly, that we change from a debt-based to a debt-free economy. That is, to a society where money, or a great deal of it, is supplied into the economy debt-free, meaning it does not require to be paid back.

And secondly, Money Reformers advocate that the creation of money should be a public service, under public control for the public good.

The essence of a viable money system is confidence. Once confidence is established, a trick can be played.

Historically, money lenders kept stocks of gold which they had acquired, or were keeping safe for others.

However, they soon discovered that instead of actually lending out the physical gold and precious metals in their safes, they could give out promissory notes which "promised to pay" the equivalent amount in gold.

They soon found that if, say, only one tenth of their clients would at any particular time insist on payment in actual coin or bullion, then the money lenders could safely make "promises to pay" totaling ten times the value of their actual reserves of coin and bullion.

All that was necessary was that people believed in the convertibility of the promises to pay. Soon, people were trading the "promissory notes" instead of the actual coin and bullion.

Thus was born the basic principles of the modern banking system.

Money is simply the medium we use to exchange goods and services. Without it, buying and selling would be impossible except, of course, by direct barter exchange.

Notes and coins are virtually worthless in their own right. They take on value only because people accept them, in exchange for goods and services. All the money in the world is useless in the middle of a barren desert.

To keep trade and economic activity functioning, there has to be enough of this medium of exchange called money in existence to allow economic activity to take place.

Hence the importance of ensuring that there is sufficient money in the economy to facilitate the exchange of goods and services, and hence the crucial importance that the creators of this money are under the direct control of the very people who need it to survive. That’s you and me.

Someone has to be responsible for making sure that there is enough money in existence. It’s not you. It’s not me. So who is it?

Each nation has a Central Bank to do this – in Britain, it’s the Bank of England.

Central Banks act as banker for the commercial High Street banks, and the government – just as individuals and businesses keep accounts at commercial banks, so commercial banks and government keep accounts at the Central Bank – in our case, the Bank of England.

If the government wants to spend money on some public project such as a school or hospital then it will collect the money from taxes, but every year the government fails to collect enough money in taxes to pay for all its spending requirements. There is always a shortfall. So what does it do? Where does it go for money?

The government "borrows" the money this way: It prints and sells "gilt edged securities". These are simply pieces of paper which promise an additional returnto the buyer, in the future. The securities are auctioned several times a year to meet the shortage of government revenue as it arises. They are bought by individuals, insurance companies, pension funds, trust funds, and banks.

The government takes the money it has raised by these sales, and spends it on its public projects. The sum owed by the government is called "the National Debt". These securities are becoming due regularly. That is, the government has to pay back the amount, with interest.

When the non-banking sector (individuals, insurance, pension and trust funds) buy securities, then saved money is being recycled back into the economy through government spending.

However, when banks buy government securities, then entirely new money – which has been created out of nothing by the banks specifically for these purchases – is spent into the economy by the government. The government has to find the money to repay them in full, with interest, which it does by selling even more securities and raising taxes even further!

Now that’s just government debt that we’re saddled with, and have to pay back in our taxes.

Money enters in other ways. There is also the money which enters society via ourprivate debts as individuals, which we owe to commercial private High Street banks.

It is a myth that these banks lend money they already have. When was the last time you went to your bank and found there was money missing from your account because it had been lent to someone else! Like the ancient money lenders of old, banks can lend out more than they actually hold!

The fact is that banks create money out of nothing and lend it to you at interest.

There is also commercial company debts owed to High Street banks, and there isinternational, or what is called "Third World" debt.

The crucial point to realise is that all of these debts – government, private, commercial and international – are debts owed to the banking system in one way or another.

Almost the entire stock of money circulating in every country in the world today represents a debt owed to the banking system. Only the note and coin issue is debt-free.

The entire financial system of all nations today is what we call debt-based; meaning that the process of going into debt is relied upon, almost exclusively, by governments, to create and supply money to their economies.

The world runs on debt. We live in a debt-based society. We cannot get money into society without almost all of it entering, at source, as a debt.

Money Reformers make two distinctions when we look at the economic world around us. On one hand we recognise and support the positive economy, which is characterised by mutual trade for mutual benefit, and productive, just, sustainable enterprise.

On the other hand, we have the negative economy, characterised by poverty, cut-throat competition, oppression, exploitation, war, waste, inflation, and starvation.

When we look around ourselves we are often forced to acknowledge that the economy we live in is often not a positive economy of mutual trade for mutual benefit, but rather a dog-eat-dog economy, a cannibal capitalism which has a tendency to eat itself and all those caught in it.

Money Reformers are alone today in recognising that many of the ills of the world are due directly to the twin facts that the economy of the world is based on debt – rather than on debt-free principles – and the power to create the money in the first place, is vested in the hands of a tiny minority.

We recognise that the debt-engine drives the world economy in many negative directions. Richard Greaves has laid out the negative consequences of the debt-based economy in his article which appeared in the November 2001 issue ofProsperity.

Moreover, while some people highlight "the redistribution of wealth" as a possible solution, Money Reformers, highlight the fundamental monopoly power of money creation enjoyed by the few to the detriment of the many.

We are highlighting the fundamental question of who has the power to create the money in the first place.

We point to the fact that many of the economic and social ills which beset society and the world today are due to the power to create money being concentrated in the hands of a tiny minority, rather than democratically distributed in the hands of the People.

This democratic imperative can be summed up in the slogans: It’s the People’s Money and Money for the People, and by the People.

What does this mean for government of the people, by the people?

Banks are businesses out to make profits. Since they alone decide to whom they will lend, they effectively decide what is produced, where it is produced and who produces it, and all on the basis of profitability to the bank, rather than what is beneficial to the community.

Our money, instead of being supplied debt-free as a means of exchange, now comes as a debt owed to bankers providing them with vast profits, power and control, as the rest of us struggle with an increasing burden of debt.

By supplying money to those of whom they approve and denying it to those of whom they disapprove, financiers can create boom or bust, and support or undermine individuals, organisations, economies and governments.

We, the people, don’t have the power to create the money. The money we require just to survive is only available from the banks. To a large extent, we are at the mercy of the banking system and we are effectively enslaved by them. We cry Freedom from Debt Slavery!

As Richard Greaves said in the November 2001 issue of Prosperity, until the power to create money is taken out of the hands of the banks, and the hands of the private interests who do it for profit and control, then we can never say that we live in a democracy.

He continued: "The nation’s economy is our economy. We create the real wealththrough our ingenuity, enterprise and hard work. The current banking system operates as a massive drain on that public wealth as well as concentrating power and control in the hands of a tiny, private minority."

So what do we need to do? Essentially, we need to move towards an economybased upon debt-free principles where much more money than at present comes into society debt-free, and we need to move towards democratic control over the money creation process.

And in this effort we can be guided by the principles on money creation laid out in the Bromsgrove Statement.

We believe that money must be based on the real wealth of society – that is, on people, skills and materials. If you have the people, skills and materials, then that which is physically possible and socially desirable can be made financially possible.

If the people have something they want to do in their community, and if they have the skills and the materials, then they should not be prevented for "lack of money".

The overall purpose of an economic system is simply to provide goods and services – as, when and where required – in order to satisfy human needs.

Money is simply the means of exchange for the goods and services produced by the people and their skills and resources. It is not a commodity in itself.

In this regard, money should be our servant – not our master. And since money, at source, is created out of nothing, there is no need for it to be scarce.

For a start, we can see that we’re paying our taxes to enrich a banking system which never had the money in the first place!

We can see that the government is raising money it doesn’t have, by borrowing from banks which don’t have the money either, but only the legal authority to create out of nothing.

The government then expects us, through our taxes, to pay back the banks with the real money that we’ve worked for! The obvious question arises: Why doesn’t the government just create the money itself?

Instead of borrowing the money from the banking system, and forcing us to pay it back in our taxes, the government could simply create the money itself, spend it into society and not need to ask for it back.

And, yes, the government – or a state appointed authority – could do exactly that. Instead it enslaves us all to the banking system … and that’s a scandal!

Please print out, photocopy and distribute these articles. Also copy and paste them to emails, and circulate widely, and please include all the essential contact information below. Thank you.

Essential Further Reading:
PROSPERITY: Freedom from Debt Slavery
is a 4-page quarterly Journal which campaigns for publicly-created debt-free money.PROSPERITY is edited and published by Alistair McConnachie and a 4-issue subscription is available for £10 payable to PROSPERITY at 268 Bath Street, Glasgow, Scotland, UK, G2 4JR. Tel: 0141 332 2214; Fax: 0141 353 6900, Email: contactus AT ProsperityUK DOT com All back-issues are still available. The 40-page Report,Clarifying our Money Reform Proposals, launched at the 2006 Bromsgrove Conference, is available for £10 payable to PROSPERITY and is essential reading for beginners.

The Grip of Death: A study of modern money, debt slavery and destructive economics by Michael Rowbotham, [Jon Carpenter Publishing, 1998] and Goodbye America! Globalisation, debt and the dollar empire by Michael Rowbotham, [Jon Carpenter Publishing, 2000] and Creating New Money: A monetary reform for the information age by Joseph Huber and James Robertson [New Economics Foundation, 2000] are all available from PROSPERITY.