In the time of Queen Elizabeth I, coins were minted and issued in the Queen’s name. Private mints were also licensed to allow the bishops of the Church of England to issue coinage. Trade credit has always been with us and now goes under the name of payables and receivables. Merchants and shop keepers have always taken responsibility trade credit and should only become of concern to governments and courts when equity and justice are abused. Ordinary people have always borrowed from each other for a few days or a few weeks. Peasants might deal in farthings and gentlemen in sovereigns but most of their dealings were not in money. Personal transactions of this kind between real people should only become the business of governments and the public courts when the good order of society is threatened. All this belongs to the Real Economy.
However 16th Century England witnessed the steady encroachment of exchanges[1]. There have always been exchanges and these have always been of two basic types. Commodity Exchanges where apples are exchanged for oranges at a price determined by supply and demand; and Time Exchanges where twenty pounds of one person’s spare money is swapped for a promise by another person to pay five shillings a quarter for the next twenty five years. Annuities had become big business for the time exchanges by the end of the 16rth century and maritime insurance grew with the growth of international trading by the English shipping fleet. What began as time lending to meet real needs on the one hand and hedging to spread the risk of piracy and shipwreck or unanticipated price movements on the other hand developed steadily until exchanges were being run and manipulated by speculators trading in risk. These exchanges provided the basis for the Financial Economy.
By the time of Queen Elizabeth II, a non-monetarised economy had been transformed into an economy where ever increasing amounts of economic activity were monetarised. Nowadays money and credit is everywhere, confusion is rampant, and few have any real grasp of the way in which the Financial Economy is preying upon the Real Economy. We will have more to say about that shortly. It was Tom Paine who said that to know the nature of things you must go to their origins.
Today the money supply is a very serious matter and of great concern to governments and central bankers. In simple terms what is referred to as The Money Supply is the amount of money in circulation: available to spend via cash and bank accounts.
Unfortunately the complexity of ‘financial instruments’ and ‘financial products’[2] obfuscates this simple fact. The Wikipedia entry describes the ‘finance industry’ extensively and mentions that it constitutes the largest group of companies in the world in terms of earnings and equity market capitalization. The entry on market capitalization[3] says that it “could represent the public opinion of a company’s net worth.
What it doesn’t say is that it is conceivable that the finance industry were to operate in the ‘public interest[4]’ but it clearly doesn’t, as long it is compelled to make money out of money. For that is the essential nature of Credit: the lender forces the borrower to pay back. However, the money to be paid back comes again from a Credit pot. So we’re all chasing each other to find money to pay interest on Credit: whether it’s banks who want repayments, the government that wants taxes, shareholders who want dividends or landlords who want rent. It is all legally enshrined and supposed to be ‘good for people’.
The irony is that the government could print money if they so wished. They have done so on many occasions. Later we will look more closely at one particular instance from the 19th century when President Abraham Lincoln issued greenbacks to finance the Civil War. But over the past two hundred years the idea has been thoroughly discredited by the economic myth makers with their worship of the power and inherent goodness of markets. The mantra has been: ‘Private Credit Good. Public Cash Bad.’ The arguments deployed are disingenuous. It is privately created interest-bearing Credit that is the root cause of inflation and not interest-free publicly issued Cash.
Markets are presented to the public as the answer to all our economic woes. The job of government, we are told, is to ensure that markets are competitive. Yet there is one strange unexplained exception. It seems that there must be national monopolies for issuing money and these must be run by private corporations with private shareholders. One day…onward and upward…there will no longer be dozens of central banking corporations because these will all be harmonised into one single central bank which will rule everybody else’s perfect markets. Are you beginning to smell a rat? This market worship is a religion.[i]
As with many money myths, this too flies in the face of the evidence. Prosperity and decentralised money issue have always gone hand in hand.[5] The King had mints in every significant town[ii]; the bishops issued coins to meet the needs of their diocese.. But where issuing money is concerned, markets are not appropriate. The more intelligent bankers mumble about Gresham and quote the remark that bad money drives out good. But this is just Chinese Whispers. They have little idea of which Gresham they mean. They have no knowledge of the times in which he lives and they have never been taught the antecedents of their business and the accumulated errors of its recent 400-year history.
It is not generally understood that for many centuries, in Britain and in almost all other civilized countries, the power and duty of coinage, i.e. of the issue of money in all forms – coin, notes and book-entry credit passed on by cheque, etc. – was vested solely in the Crown or State. For this reason the tradition still persists of putting the Sovereign’s portrait on the coinage, though in fact since the end of the 17th century, the reign of William and Mary, by far the greatest part of all the effective means of exchange are issued by private bankers out of nothing by mere book entry, to be lent at interest to the State and to private borrowers. Thus real power passed from the State to the private bankers.
There is ample evidence from many independent sources to prove that most of the means of exchange in modern conditions originate with bankers. In America it is aptly called “fractional reserve banking,” meaning that if you have a pound in cash in the till you can issue ten or twenty times more in the form of “credit” on the books, which is mostly circulated by cheques.
Yet this is no mere academic matter, but a question of supreme importance, affecting the Sovereignty and very existence of the State and country. It has been said that there should be no taxation without representation, yet private financiers can issue “imaginary” money out of nothing by mere book entry and lend it at interest, they acquire the profit of issue and of interest gratis, at the cost of the whole community. This is taxation in the fullest sense, accompanied not by the representation of the taxed, but by the complete power of the true tax collector, who is the ruler. The basic truth of no taxation without representation is turned upside down and inside out.
It follows that the power of Parliament in general, and especially with regard to Money is non-existent, and all true sovereignty is in the hands of those private individuals who issue all money and determine its value and distribution. If even the State borrows from them, having abandoned its own powers of coinage (emission) to private financiers, how can that State claim to be truly sovereign? The real basis of the power of the money-creators and money-lenders lies in the fact that few know the truth about this financial “hidden hand.”
Henry Kerby in his 1962 Early Day Motion remarked that the nationalization of the Bank of England only served a subsidiary purpose and almost all money was still created out of nothing by mere book entry by private banks. It was with this in mind that he proposed:
‘That this House considers that the continued issue of all the means of exchange – be they coin, bank-notes or credit, largely passed on by cheques – by private firms as an interest-bearing debt against the public should cease forthwith; that the Sovereign power and duty of issuing money in all forms should be returned to the Crown, then to be put into circulation free of all debt and interest obligations, as a public service, not a private opportunity of profit and control for no tangible returns to the British people; that the volume of money be controlled so as to maintain stable prices.’
Four decades later, our petition is asking a Committee of Her Majesty’s Government to make an inquiry into the long-term development of the money supply, and especially the ratio between Cash and Credit. While the monetary principle is the same, today we have computers, the internet and the world wide web as tools of wisdom and of politics.
The truth is that it is in the public interest to increase the Cash share of the money supply. If Parliament were operating in the public interest, it would jump at the opportunity. Instead the Prime Minister had to go to a Leonard Cohen[6] concert to cheer himself up (see BBC News[7]). Better had his good cheer come from the happiness of the people who would get their pensions paid properly, their homes made energy efficient, public buildings made fit for climate change. The monetary needs of socially and environmentally responsible activities are poorly served by present arrangements. They are forced to beg for crumbs at the table set for merchants and warlords. In this regard trickle down theory has some relevance. But things could be so much better.
In fact we could go much further. In Bangladesh, for instance, Grameen banking principles have been key to pioneering the art of lending out at interest but not at usury…an art once widely practised throughout Europe prior to the advent of Double Dutch book keeping and central banking corporations.
Grameen means village, so we could just as well have referred to village banking principles for the Real Economy and central banking principles for the Financial Economy. The differences between the two are discussed later. Loan recovery rates from microcredits to the poor are 97% compared to rates that are often below 70% for the commercial banks that quietly write off loans of their commercial customers and silently destroy the country’s money supply as they conspire in the bankruptcy of small businesses by their discriminatory treatment of credit between real people and judicial personas and between large profit maximizing corporations and small social businesses.
It may be that they should continue to do so. But let their commercial banking criteria service big business and middleclass property. The homes and the work of the other ninety percent of the country…the middle class and the aspiring middle class presently locked in poverty as an underclass…need their own mints and exchanges. These should work to Grameen principles.
An inquiry by the Treasury Select Committee into the money supply would necessarily investigate the destruction of the money supply as well as its creation.
[1] R. H. Tawney’s two chapters on exchanges.
[i] Stephen Zarlenga, author of The Lost Science of Money and head of the Chicago-based think tank, American Monetary Institute wrote recently about the religious nature of this market creed. These false gods have been promoted and not questioned. Their negative effects have been wilfully misunderstood. Markets have been allowed to acquire a sacred character. Parliaments should not legislate because market forces will crush their laws. Governments have no business instructing markets because the herd instincts of the millions who participate in markets is more reliable than the partial knowledge and human weakness of politicians, civil servants and market regulators. Markets, we are assured, are kind and reward good behaviour…even though on occasions these mystical beasts find it necessary to be cruel to be kind. Omnipotence, omniscience and benevolence are attributes of the gods. Sorely missing from this market worship is any evidence. But religions are not based on facts but on faith…the basis of Richard Dawkins’ challenge in The God Delusion…and the basis of his critics’ defence. In fact there is no evidence that removing regulation has a beneficial effect and plenty of evidence to the contrary. Ludwig Von Mises, whose Human Action is the holy grail of The Austrian School and the Chicago University Economics Department under Milton Freeman, would agree. ‘Facts’, he claimed, ‘cannot disprove my theories’. It seems we must wait until events prove them right or wrong. But first markets must rule the world. Engineers understand the importance of scale testing. But millions must be slaughtered by Disaster Capitalism as tests are conducted by economists on the whole world. This is madness, the like of which the world has never seen.
[ii] There is a street called The Mint in many small towns like Rye on the English Channel Coast as a present memory of times past. They should be seen as signposts to Times Future. .
In the Spirit of the Forum for Stable Currencies