Monetary Reform - The Key to Economic Justice

by John Roux

'There is enough for everyone's need, but not for everyone's greed' Gandhi

'The privilege of creating and issuing money is not only the supreme prerogative of government, but is the government's greatest creative opportunity' Abraham Lincoln


What is money? Why do most people never have enough? Why do a small minority have far more than they need, or could ever use on personal needs? Extravagant wealth and widespread poverty exist side by side. Does it have to be this way? And is the prevailing monetary system in any way a cause of inequity, social disease, and poverty? This chapter explores how the current financial and monetary system, as the heart of a profit-driven economic order, ensures that the rich become richer and the poor poorer.

For most, the scarcity of money is a self-evident phenomenon. Almost everyone as a consumer needs or wants more than they have. Producers on the other hand are desperate for sales. Cars stand unsold in lots, goods pile up in shops, agricultural products are stockpiled and even dumped. Producers are so desperate to sell that they spend vast amounts on persuading consumers to buy their products. Marketing accounts for 18% of all economic activity in the USA, which is hardly economical. It certainly doesn't produce anything useful, while shaping desires and consciousness in a highly questionable direction, and constituting massive cultural pollution. But then in the current situation, production is not for people but for profit, so it hardly matters what this 18% of the US economy produces, or what the consequences are, so long as there is profit in it.

At the same time there is spare industrial, agricultural, and labour capacity, and even greater potential for increasing capacity. Modern technologies and management techniques enable the production of ever more with less, and certainly enough to meet the basic needs of everyone. Why is this not possible within the so-called free market system? Quite simply, there is insufficient demand, and producers cannot and will not produce or supply what they cannot sell. The problem is not one of production, but of lack of demand and equitable distribution. And lack of demand is simply a lack of money, particularly among the poor.

We are conditioned to believe in the inevitable shortage of money. But this situation is not true for all. There is a global elite who can afford to, and do create a demand for the production of extravagant and often excessively priced luxury products, including armaments. The price tag itself becomes a status symbol. On the one hand 'the market' will produce the most extraordinary, unnecessary and even entirely customised single product if someone or some organisation can afford it, or can afford to borrow to buy it. On the other, it will not produce bread for the starving, shelter for the homeless, or medicine for the dying, unless they can afford it. And all too often they obviously can't.

The 1992 UN Human Development Report showed that the richest one one fifth of the world's population received 82.7% of total world income, leaving 17.3% for the other four fifths, with the bottom three fifths getting only 5.6% and the bottom one fifth only 1.4%. The 1999 report shows increasing inequity, with the share of the top one fifth having risen to 86% of the total. The picture is one of a great and increasing excess for the few, and a corresponding shortage and deprivation of money for the majority.

We could easily produce all that the poor need to live modestly decent lives, but we don't. Why? Because they lack the money to create the demand. Why is this? Because they are unemployed, employed in underpaid jobs, or engaged in marginal small enterprises. So we have a classic catch 22 situation. The poor remain poor because they are too poor to create the demand that would create the employment that would provide them with the money to purchase the fruits of their own labour, and thus enable them to meet their own basic needs and stop being poor. And the current, technology-driven phenomenon of jobless growth makes the prospect of jobs for all ever less likely. How then is the problem of poverty to be addressed?

According to the dominant neo liberal free market ideology, the market will provide for all, if only it is sufficiently free, but reality refutes this, particularly for poorer countries. The truth that the UN research reveals is quite the opposite. This is confirmed by the results of a study by the Washington based Centre for Economic and Policy Research. Comparing 1960-80 with the 1980-2000 period that has seen increasing market liberalisation, it found that 89 countries experienced a fall of 5% or more in real per capita growth rates, while only 14 countries (13%) saw per capita growth increase by as much. Clearly the global economy and monetary system sucks up wealth faster than it trickles down.

In the free market, money confers power, freedom, and material well-being, but lack of money condemns millions to powerlessness, dependence, material suffering, criminality and even death. Free markets by no means provide freedom on an equitable basis. No wonder money is so desired and sought after. Yet a free market would work very well if only everyone had enough money. Is this really that impossible?

What is money?

Money in any form is simply a right to acquire whatever you need or want, via payment in some form. If I enter a shop with R100, I have the right to leave with R100 worth of goods. If I do so without giving over the money, (or my bank doing so via a credit card or cheque based transfer), then I'm stealing, I have no right to what I am taking. The amount of money anyone has tells us the extent of their right to claim and acquire what others have produced, or have, for example land. This shows that money is literally a substantive right, a socially sanctioned entitlement. Money = Substantive Rights (SRs). The term "legal tender" points to the true nature of money, not as a commodity but as a right or entitlement. In most democratic societies citizens have equal human rights, but very unequal substantive rights.

The concept of economic justice calls for recognition of the true nature of money, that is, not simply as a neutral means of exchange or a commodity to be traded for gain, as in the trading of currencies. Money is a right needed by every human being in sufficient measure, if they are to have an existence worthy of being human. This principle is the basis for the proposal for a Citizen's or Basic Income. The issue is, how is this right currently acquired, and how and why is it withheld in sufficient measure from so many?

The seemingly common sense view, endorsed by the Protestant work ethic, is that if you want money you have to work for it. If you don't have enough it's your own fault - you didn't work or work hard enough, so you don't deserve any (though this is hardly a charitable or Christian view). On the Western frontier this may have been true, and may still contain an element of truth, but in today's complex economy it is hardly a fair response to the thousands of desperate job seekers in SA, who will do anything to get work. It is not laziness, but society and the economic system that condemns them to idleness, and in our country denies them their basic substantive rights as a result.

There is however already the widespread practice of giving of money or substantive rights by both individuals and the state, to children, the aged, disabled and unemployed, though more so in wealthy countries, particularly in the latter instance. The separation of work and income is an increasing reality, which technology makes both possible and necessary. But there are also other ways of acquiring money/SRS without working that need to be recognised, that are less altruistic, and certainly less beneficial. The well off are often quick to blame the poor for their poverty, attributed to a failure to work, but conveniently forget the various methods whereby they themselves make money without working.

Making Money out of Money

Other ways of acquiring substantive rights include inheritance, the selling of assets, investment and speculative trading of all kinds, borrowing, or receiving interest on loans and deposits. These options are available to the degree that one already has SRS, or assets that can be converted into SRS/money. The current monetary system clearly allows for the multiplication of one's legally sanctioned substantive rights without limit, though this is certainly not without consequence.

These options enable the rich to get richer, but exclude the poor, apart from limited borrowing, which usually further impoverishes them. The great global example of this is the often hopeless situation of highly indebted poor nations. The overall debt of developing countries has escalated from under $70 billion in 1970 to over $2,000 billion today - in 30 years third world debt has multiplied 30 times. (World Bank Debt Tables). Apart from work, the options for the poor are now largely limited to begging, (as the demand for charity, including government grants, international development aid and corporate social investment), stealing (and other forms of crime e.g. the drug trade), or starving. Due to this tremendous advantage the rich have over the poor, governments have to acquire SRS via taxation, and redistribute them to the poor via expenditure and grants, including development aid, simply to keep millions from extinction. Governmental redistribution of SRS is appropriate, and necessary to counter-balance their highly inequitable distribution within the current economic system.

It is quite clear that those who have money can make more money by means that mostly involve very little if any work. If one has sufficient money it is easy to set one's money to work to make more money. It is possible to multiply one's substantive rights to the extent that one already has an excess of it. To the extent that one has too few substantive rights this is not possible within the current system.

The most common mechanism for this multiplication of money is investment, which is really just speculative purchasing. Profit depends on selling for more than one buys. There are only four things that can be done with money, you can keep it, purchase with it, lend it, or give it away. The corresponding or reciprocal actions or conditions are to do without, receive payment or share capital, borrow, (that is receive credit or a loan), or receive a gift, donation or grant. The poor by definition are unable to save, invest, or to lend, and are forced to sell their labour, that is, those that are fortunate enough to be able to do so. In doing so, they work largely to satisfy the needs and wants of the well off, whose share of SRS translates into upward of 86% of demand in the global market place. This explains for example why in SA we have numerous motor vehicle manufacturers serving a small percentage of the population, but probably not one bicycle manufacturer, though it is far easier to produce a bicycle than BMW, and the potential market for bicycles is far greater. The inequitable distribution of SRS leads to highly distorted markets and production, which satisfy an extraordinary range of wants and whims of the wealthy, but not the basic needs of the poor.

One way of acquiring SRS when you don't have sufficient is by borrowing. And lending can be seen as a worthy social function, even a sacrifice - one worked hard, saved and lent the excess one didn't require to others to employ, largely as capital for enterprise development that then benefited society as a whole with enhanced production. But today there is overproduction relative to the market where demand is largely the demand of the 'haves', and even the middle class clearly don't have enough money to purchase all that they want or that is already being produced. Clear evidence of this is the boom in consumer credit. More and more people who have reasonable incomes live increasingly on credit and in debt, and there is no more obvious indicator than this of the inherent shortage of money, for all but the very few. That is the few who have no need of credit because they have a surplus to invest or lend.

Most lending and investment today is purely speculative, as it is far easier and quicker to make money in this way than by real productive investment. As if the advantages of the wealthy were not sufficient, there is another significant but little recognised means of making money, not out of money, but out of nothing, by actually creating and issuing money/SRS How is this done, by whom, and who benefits?

Making Money out of Nothing, and Lending it at Interest

' The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented' Lord Josiah Stamp, Director of the Bank of England 1937

Most people still see money as something physical and probably believe that governments create it, which is true of physical money. But this cash component of the money supply amounts in modern economies to no more than 5%. The rest, 95% of all money is only figures in bank accounts in bank computers, and is created by commercial banks via the issuing of loans and credit. Today banks do not lend either their actual reserves or deposits, but make loans on the basis of, or against these. There are legislated limits as to the ratio of required reserves to loans, in SA this being 2.5%. In addition, loans and credit, accounted as bank assets, plus other asset and reserves cannot amount to more than deposits, accounted as the bank's liabilities. However, when a bank is short of reserves, it borrows these from the SA Reserve Bank (SARB), or other banks. So the fractional reserve requirement is only a small obstacle to creating credit.

But what of the total of deposits as a limit? When a bank issues a loan, this is usually soon paid to the account of the seller of the car, house, etc., thus creating a new and additional deposit in the banking system as a whole. In this way every loan creates a deposit which increases the total of deposits and the money stock, thus enabling a further loan, which creates a further deposit which enable a further loan, and so on. The limit of deposits is thus no limit at all for the banking system as a whole with regard the creation of money via the issuing of loans. The universally accepted principle of Fractional Reserve Banking, and a required reserve ratio of 2.5% (in SA), enables our banking system to multiply R100m borrowed from the SARB into R3,900m of credit, created out of nothing.1 The most significant limit to borrowing is the capacity of the borrowers to afford the loans, and this is why interest rates are so crucial in controlling the amount of money created, and thereby inflation.

There is really nothing wrong with creating money out of nothing, as it is nothing. Nothing, that is but figures at the banks - a gigantic set of accounts tracking SRS for society, or rather those 'on the books'. The issue is, who creates money/SRS, and who benefits. Today approximately 95% of all new or additional money/SRS that exists only as numbers in bank accounts/computers, is loaned into existence, not by governments but by commercial banks, with the sanction of Central or Reserve Banks. And that 95% of money, created via the issuing of loans or credit, all has to be repaid, with interest, to its creators. The greater or lesser figure with a minus in front of it is entered against the borrower's name will have to be repaid, often doubly over time, for example on a mortgage. And while the repayment of capital cancels the debt, the interest paid remains as an asset of the bank. Banks and their shareholders / owners and depositors thus benefit from an ever-increasing stream of interest repayment, based on the creation of new and additional money.

As a result of the above method of money creation, most new/additional money is 'born' bearing a burden of debt, and over time the entire money stock becomes burdened with debt. The banks who create money have a tremendous advantage, even though they cannot spend it directly, but must lend it, and reap the profit via interest over time. The special profits gained in this way are enormous, (e.g. estimated at 21 billion pounds per annum in the UK2), and amount to a private tax or tribute extracted by banks from society as a whole. Crause estimates that in SA these hidden profits of / subsidy to the banking system would amount to 20% of annual tax revenues. The real tragedy is that this could and should be an annual debt free gift from the government to its more needy citizens, created out of nothing, at no cost to anybody but those who currently profit by its creation.
Traditionally lending was acceptable, as a means of helping others in need, but most religions including Christianity forbade usury, that is the practice of lending for profit by charging interest on loans. Islam still forbids the practice of usury. In lending for profit, self interest rather than a social motive is obviously involved. This may seem of little significance in the individual instance, but on a collective basis, and where large sums are involved, the consequences are both enormous and pernicious. The consequence is a money system that sucks money out of the pockets of those who have too little and are forced to borrow, and deposits it in the accounts of those who have too much. The indebted, the workers they employ, and the consumers who buy their products have to work twice as hard to pay back both capital and interest, while the wealthy need not to work at all, as they live on the interest paid by the labour of others.

Debt Slavery

However, there are other consequences of banks creating money via lending. Firstly, over time the almost the entire money supply becomes burdened by debt. This can be verified quite easily by the relevant statistics. For example the total money stock in the UK in 1998 was 680 billion pounds, whereas the total debt (private, government and corporate) was 780 billion pounds.3 Technically, according to the national accounts as held by the banking system, the UK was bankrupt, 100 billion in the red! The entire nation had less than no money, (due to the fact that pound denominated debts were also held outside of the UK) If the banks did their sums and cancelled all the credit with the all debit, they would discover the awful truth. There was less than no money with which to purchase and trade all the very real and obvious wealth in terms of goods and property and services it possessed! Such is the absurd situation to which a debt based money system reduces even a wealthy nation - one of the G8 no less (and the others are all in a similar position)! Of course banks never do this, they just keep lending more, and naturally there are those who keep profiting by it.

It would appear from this that there is something rather amiss with the way the banks keep the accounts. Surely there should be an overall real positive balance of money, equivalent to the needs of citizens, and reflecting the actual wealth of a nation, or at least enough of it enable ongoing exchange and development, without an equivalent debt.

A second consequence is that, banks are forced to keep on lending, or the additional money needed to pay the interest on all the debt already created wouldn't be there. This method of money creation requires the continuous and accelerating growth of the money supply, simply to repay interest on debts that over time amount to virtually the entire money supply, or even exceed it. The figures show this rapid and exponential growth in the money supply in recent times, for example in the UK from 14 billion pounds in 1963 to 680 billion pounds in 19964 In 33 years the UK money supply increased over 48 times, that is on average more than doubling each year! In SA the money supply grew from R173,623m to R34,0521m between 1995 and 1999, doubling over four years5. The great tragedy is that this enormous increase in money has been so inequitably shared, is so constrained by the debt that it bears, and is so ill-used relative to the real needs of the poorer majority of the population.

Debt based money creation leads to the absurd situation, where many are heavily indebted to the few who benefit by the constant stream of interest generated by these debts, and the many minuses cancel out the fewer and often very large pluses. Societies as a whole are financially bankrupt according to the accounting of a debt based monetary system, and have to produce ever more money to pay the interest on the debt that is bankrupting them. But the more money the banks create to enable the debts to be serviced, the more debt they create, because they create additional money by issuing credit, and issuing credit equals issuing debt. The effect for the economy as a whole is equivalent to trying to compete in athletic events shackled by a ball and chain. But no-one notices, and it is considered quite normal, because most the other desperate competitors are likewise handicapped by their burden of debt. Naturally the real winners, the wealthy, compete without the constraint of debt, and in addition profit greatly by the debt of others.

A further consequence is that ownership of assets is increasingly transferred to banks. For example in 1960 the average mortgage in the UK was 1.1 times the average annual income, but by 1996 it was twice the average annual income. This means that people have to borrow ever more and pay off on bonds for longer, before they actually own their houses. In the USA the total amount owed on mortgages doubled from 1987 to 1997, while incomes increased by only a third, and the percentage of houses mortgaged rose from 36% to 48% in just 10 years.6

The reason for the all-pervasive shortage of money and consequent lack of demand is now no longer a mystery - it is the inevitable consequence of money creation for private profit via the issuing of bank credit. Over time this leads to virtually the entire money supply becoming burdened by an equivalent debt, which means that a significant proportion of the money that individuals, companies and governments earn or otherwise raise must be devoted to interest and debt repayment. The effect is that incomes are depressed and often more than halved, which depresses demand, which depresses production, which creates unemployment, which further depresses consumer demand in a vicious cycle. At the same time corporate debt repayments must be paid from sales income, which increases prices, which depresses purchasing, employment etc. The vice closes from both directions, as debt decreases incomes and increases prices. Debt ensures that total wages must always lag way behind the total of prices, so with a system of debt based money creation there will always be a general shortage of money for all but the super rich. On top of this, government debt must be serviced by higher taxes, which again lessens disposable income. Small wonder that economies like ours don't grow. And even in developed countries, the only way to prevent recession is to constantly pump more debt based money into the economy, or suck money out of other countries by triumphing in ruthlessly competitive global economic warfare. This enforced competition and ruthless, unsustainable growth are further inevitable consequences of the debt based system of money creation. The imperative for companies is increasingly to grow and profit at any price or go under; and the relentless quest for new markets and profits is what drives globalisation.

Though governments do not create and issue most money, they do control the rate at which it is issued, and thus inflation, via central banks setting interest rates, which confirms that money comes into circulation via bank credit. Raising interest rates discourages borrowing and the issuing of credit for investment and consumption. This naturally slows economic growth and gives rise to recession. Interest rates are therefore lowered, which increases borrowing which increases the money supply, which stimulates economic growth. But because of the lag between the issuing of credit and the creation of equivalent real value, inflation starts up again and interest rates are raised again. Thus the so called business cycle is set up.
At this point some may argue that much of the money concerned is not new, or additional money, but the lending or putting into circulation of already existing money, and that no new money is necessarily involved. At face value this appears to be at least partly true, but the rapid and constant increase in the money supply does not come from nowhere, and the bulk of it is certainly not provided by governments and central banks as it should be.

The question is: do banks ever lend actual deposits, or do they lend only against deposits? In other words, is there at least a portion of bank lending that is real lending, where for example the bank's, or Mr. Y's deposited money is lent to Mr X? Is any depositor ever told that their balance has been reduced or is nil, because their money has been lent to someone else? This simply never occurs. Banks issue credit without touching or altering the positive balances of depositors or their own reserves, which means that all bank credit involves the creation of new or additional money, and equivalent new debt. But every loan created out of thin air must be repaid with interest by borrowers, to the moneyed elite of wealthy lenders and bank shareholders who live by usury and worse - the plain fraud of officially sanctioned counterfeiting of money, that is substantive rights, and lending these at interest.

There are also significant social consequences that result from anonymous bank based lending and broker managed investment via the markets. The real and traditional connections between borrowers and lenders, and between companies and investors as shareholders and real partners is severed, and with this, human concerns and considerations. In the anonymous and abstract markets where human connections are lacking, consciousness and responsibility diminish, and profit becomes the only measure and motive. The system promotes and indeed institutionalises the principle of greed, while at the same time disguising its practice.

Speculative Trading - A Cancer in the Global Casino

The monetary advantage of the wealthy elite based on usury and what amounts to counterfeiting is doubly compounded by their ownership of assets including vast property and corporations via share holding, and the speculative trading of these assets, together with currencies themselves, on world markets. It is estimated that of the over $2.5 trillion volume of market exchange each day, less than 5% is related to real trade or investment that adds real value to the world economy. The rest constantly flows around the globe reaping speculative profit where nothing has been sown or contributed. Speculative currency trading is the most obvious example of this, but by no means the only one. This amounts to a speculative trading of the usurped substantive rights of the poor for profit. The effect is the enormous enrichment of the moneyed elite, often at the cost of ruining many smaller investors, and even whole countries and regional economies, and increasing poverty for the most poor and vulnerable.

The global financial system has become in large measure a virtual or speculative economy - in effect a great global casino in which the elite gamble for profit, power and pleasure, using as chips the substantive rights which are the stolen birthright of the majority of humanity, and the very bread which should feed the poor. This amounts to an economic and moral cancer of barely conceivable proportions, which has the potential to cripple and crash the entire world economy.

In addition the really big 'players' are able to 'play' the markets to their own advantage, both by manipulating perceptions and actual values and trends in the markets. This enables them to predict and profit by both 'bulls and bears', and booms and recessions, because they have a hand in creating them. By investing they drive up values, other investors follow, and the company, country, or region becomes over-valued, the big players then sell when the going is good, and precipitate a crash and losses for the rest, while walking away with vast profits. They then buy up the undervalued assets at fire sale prices, as a sure basis for further future profit. Such activity amounts to ruthless exploitation, and it usually attended by real human suffering, particularly on the part of the most poor and vulnerable. The policies of the WTO and other neo-liberal institutions of elite globalisation amount to the legalisation and enforcement of the exploitative economic rule of a predatory elite on a world wide basis. Governments that do not submit to this new world order are threatened with economic ruin and consequent social catastrophe.

All speculative activity of any kind has the effect of creating fictitious value and illegitimate wealth, which however justifies and drives the creation of real additional credit, loans, debts and deposits in the banking system. This money has no corresponding increase in real value, and it thus inflates both the money supply and the proportion of it held by the tiny, already super wealthy elite. For example, the combined wealth of the world's 3 richest men (that is, the substantive rights they have appropriated), is estimated to be greater than the combined total national wealth of the world's 40 poorest countries and their entire populations. Though it is clearly in the interests of the elite that people believe that such wealth and poverty have little to do with one another, this is hardly a credible notion at this stage. The Jubilee 2000 Coalition estimates that 7 million children die each year because money is spent on debt repayments instead of health and clean water.

Hoarding the Flow of Substantive Rights

An additional consequence of a debt-based money system is that it slows the overall velocity of money, or the speed with which it circulates in the real economy. Because money can make money via interest, everyone holds onto it in order to gain. Debtors pay creditors as late as possible, and people hoard money rather than spend or give it away, though inflation usually erodes what little they gain in this way. This makes the circulation of money much slower than it could be, which is of great but little recognised significance. A simple exercise shows why. Make two groups of say 10 people each. Give one group R100 and the other R1, and each person in both groups some object to trade. Tell the individuals in the rich group that they must aim to get as much money as possible, and that for every10 seconds they have the R100 they can get R10 in interest, and in the poor group that they should aim to exchange as many goods as possible as the R1 loses 10% of its value for ever 10 seconds you keep it. In the rich group people will be tempted to sit on the R100 and collect perhaps another R100 in interest and so emerge as the 'winners', while the rest of their group sits idle and obviously loses out, possibly even trading nothing at all. In the poor group the single R1 will circulate rapidly around the group in a flurry of buying and selling, with transactions of over R100 in value in a space of a few minutes - all accomplished by the same single Rand! While the idle R100 impoverished all but one in the rich group, the rapidly circulating R1 accomplished the miracle of ensuring that the whole poor group became well off via hundreds of Rands worth of transactions, though they had and still have only R1!

The same limited amount of money can serve more people far more often, simply by flowing faster. In fact, as can be demonstrated with the above exercise, more people can be added to the prosperous but poor group without them being any worse off, as long as the R1 keeps moving fast enough! Without increasing the current stock or volume of money, all of the poor could be fully included at the level of a basic decent existence in the economy if sufficient money simply flowed through their hands, as long as the money kept flowing fast enough! No-one would be any poorer, as the exercise demonstrates. Such is the potential power of a money system based on the principles sharing and giving to enrich all, (even when reciprocal and not purely altruistic), as opposed to a system based on taking and greed, which impoverishes multitudes.

This simple structured exercise, while not a perfect simulation of the complexity of a modern economy, nevertheless demonstrates the importance and power of the velocity of money, or of reciprocal giving and receiving (real trade) as opposed to greed (making money out of money). Unfortunately the wealthy also make use of this principle for their own gain, by extremely rapid speculative trading in the virtual economy of the world markets, thus continually increasing their share of overall wealth.

Institutionalised Marginalisation

But for the poor there is yet a further problem. They are already severely marginalised in terms of power relations and the dynamic of the global monetary system that governs the issuing, distribution and exchange of substantive rights. But this marginalisation is made absolute by another often overlooked fact. In most economies there is a limit to the proportion of the total money supply to which the poor have access, and this limit is generally under 5% of the total, irrespective of whether the poor be 5, 10, 30 or 80% of the population. This is because today on average the percentage of the total money supply that exists in physical form as cash is less than 5%, and this is the only money the poor have access to. The other 95% of the total money supply exists only as numbers in bank computers, the money that is simply transferred from one account to another with the greater majority of purchases, loans and gifts in a modern economy. And this invisible, intangible money is not available to anyone without a bank account. The poor cannot get their hands on it, they are simply excluded from participation in the main stream of the money flow, because they only have access to the 5% trickle of physical money. In SA it is estimated that 60% of the population is 'un-banked'. This 60% of the population have to survive on less than 5% of our money stock!

From the above it is evident that the function of entire banking system is in one respect nothing but the book keeping system for 95% of a society's money, and for a far smaller percentage of citizens in poor countries, i.e. those that have bank accounts. It keeps track of how many SR units each person with a bank account has, and how these increase or decrease as we use our units for purchasing, lending or giving. It records as in a gigantic ledger all the transactions of those who are 'on the books', and ignores those who are not. Thus the masses of poor people, who most need additional SRS, are prevented from accessing more than 5% of all substantive rights available to society as a whole, irrespective of what proportion of the population they constitute. This institutionalises, economic injustice, inherent inequality and poverty as structural characteristics of the system.

And if money is mostly simply figures in bank computers why should there ever be a shortage of money? Creating more money is as easy as keying in higher numbers (as banks well know). If there is a shortage of money why isn't this done? In fact it is, and on a continuous basis by banks, but it goes as loans to who can afford to repay debt, and via the interest to the banks, their wealthy depositors and owners. The magicians who have the power to create money in this way naturally do so for their own benefit and not for the common good or to meet the needs of the poor. The profit motive is simply a euphemism for greed, a weakness of the human spirit, whose true realisation and development lies in giving rather than taking.

The debt-based money system thus results in a relentless pressure for economic growth and profit, attended by an endemic and chronic shortage of money. It works to prevent altruism and sharing, and creates ruthless competition and a primitive Darwinian struggle for economic survival on the part of individuals, corporations and nations. Even the winners are bound to work ever harder and under increasing pressure just in order to stay ahead. Under this system where all must struggle to gain as much as possible for themselves just in order to survive, there is little room for altruism, for giving to and supporting others. The system clearly benefits the very rich and powerful few who occupy the commanding heights of economic power, but has massive disadvantages for the majority of humanity and particularly the poor. It results in extremes of inequitable distribution of SRS, with incredible wealth for the few, and inevitable and often dire poverty for the many and most vulnerable. It clearly both creates and perpetuates world poverty.

Why don't democratically elected governments challenge the economic new world order? In the world today politics and the power of governments takes second place to the power of the transnational corporations (TNCs) and the global moneyed elite. Politicians who are not already members or minions are quickly co-opted. The 'money masters' are the puppet masters behind the world of politics, and they rule the world via the power of 'their' vast and illegitimately acquired wealth - in reality the substantive rights which should be more equitably shared among the whole of humanity.

An Alternative Paradigm - Debt Free Money

The essential proposal of all monetary reformers is and has always been that governments should issue money/SRS in whatever form, debt free to their citizens, and that it is indeed their responsibility to do so. The issuing of debt-free money will not do away with lending, debt and interest, but their overall volume will be greatly reduced, as well as compensated for, when the entire money supply is not debt burdened at source in the act of it creation. This will not reduce the possibilities of making money out of money (unfortunately), but will stop its creation via debt and the issuing of money as credit by banks.

The money system and money are, as Lincoln and other monetary reformers understood, not economic but rights functions, which in a healthy form mediate economic exchange and reasonably equitable distribution of the fruits of economic activity. Money and the money system should and can serve the common good and not private greed. This was traditionally recognised in that only kings and governments were allowed to issue coin and note as legal tender. But as money increasingly took the form of credit balances in the computers of commercial banks, so bank lending became the mechanism whereby new, but debt-burdened, money was created. As a result, the power to create new money has shifted from public to private control and has resulted in private gain for the wealthy and exaggerated inequity. Monetary reform entails one central proposal, the reversal of this unjust and highly damaging method of money creation. The essential proposal here is that democratically-elected governments should:

These reforms will realistically have to be implemented over a period of time, so that money creation is progressively shifted from banks to governments, which will result in a corresponding decrease in the proportion of debt based and burdened money and the elimination of many of its destructive consequences. As current loans are repaid, debt based money will disappear from circulation. This is not to say that loans will not continue to be made, particularly by banks, but they will all be real loans, of already existing money. If this results in insufficient money available for borrowing, more will have to be created, but not by the banks. However, as the proportion of debt free money increases, the overall level of indebtedness in society should logically decrease. The positive results of a complete transition to debt free creation of money by governments / Reserve Banks should include:

Naturally those who currently benefit from bank issued debt based money, the wealthy, super rich and corporate predators, are going to have to 'suffer' a relative decline in their cash flows and overall share of wealth/SRS But social justice demands this, and their 'hardship' will hardly rate high in the annals of human suffering, particularly as their other significant advantages will remain. The issuing of debt-free money and other funded benefits to the poor by government will directly increase demand, production and employment at the lower, basic needs related end of the market. There may well be a corresponding contraction in demand, production and employment at the upper end of the market related to luxuries, expensive assets and speculative investment. For example there should be a boom in low cost housing development, while the top end of the housing market should suffer a recession and declining prices. In other words, the market would gradually be reshaped in a more equitable direction, with relatively more money available to the poor, and less to the rich. However, the overall effect of the increasing circulation of debt free money should have a beneficial and stimulating effect on the entire economy, so that by far the majority, including the middle class should become better off.

Including the Poor

An additional reform needed in poor and developing countries is to increase the ratio of cash to non cash money and / or to rapidly bring the poor into the credit based financial system. Government could issue debt free money via a Citizen's or Basic Income Grant (BIG), or increased social grants to the needy, either as cash or via a BI credit card. For the latter to work and all to have reasonable access would require the extension of infrastructure, but what better way to invest bank profits rather than in opulent sky scrapers? Ideally banks, whose function is to keep the substantive rights accounts of society, should be public interest, non-profit organisations, else the poor who cannot pay for this service are likely to be excluded. If the banks cannot be persuaded, or required via legislation, it may be necessary to redevelop the post office network in rural areas, and realise its potential as a public interest institution. This can naturally be funded with debt free money created out of nothing by government. All this flies in the face of a key neo-liberal prescription, i.e. that of privatisation which would result in the closing of all unprofitable branches in poor and rural areas, where they are most needed. Of course where the poor stand to profit, this is not considered as profit.

Another strategy would be to ensure that sufficient local rural stores have CI credit card payment facilities. What better way to support rural small businesses than by giving their customers money as debt free credit, and enabling them to spend it? It is only a small step from this to that of being able to access cash from the store if necessary, as is already possible at certain supermarkets. The store would simply provide the cash and debit the account of the purchaser, just as for a credit card.

Why Not?

This article does not attempt to deal with the technicalities of instituting monetary reform, but these are not usually among the reasons given as to why it can't or won't work. Nor are the principle or moral legitimacy of monetary reform pronounced as its major defects. However, a change as fundamental as this inevitably threatens vested interests and will naturally be opposed by those currently holding all the cards in terms of financial power. Monetary reform will be dismissed as based on a faulty understanding of the present monetary system, and as misguided, unworkable, or dangerous in terms of tampering with the present system, which works (works for whom is the issue), in spite of imperfections. But there may well be risks, unforeseen obstacles or negative consequences, and hence any objections do need to be seriously considered.

A notable objection is that monetary reform may be a good idea, but is not possible, as any country attempting it alone in the context of a global debt based economy risks ruin. Investment and particularly investment based on borrowing will decline, domestic capital will flee even faster, and a serious recession if not a full-scale depression will be inevitable. Various components of and variables within this scenario could be developed. But the basic motif is that the rich will be offended and will stop supporting an economy that constrains their ability to profit and grow richer, and that given their economic power, they will be able to do serious damage, if only by taking their money elsewhere.

There are a number of responses to this argument, and measures that can be taken to counter its predictions. The first response is that monetary reform will be implemented as an incremental process which should demonstrate during a well monitored and controlled transition that its overall positive effects and benefits outweigh its costs. Demand led growth at the lower end of the market should generate sufficient profit and capital for reinvestment in incremental development of needs focused productive capacity. A major benefit of a sustainable, needs-focused local / national economic development strategy will be that of decreasing social instability and crime rates, which are the biggest deterrents to both foreign investment and tourism. Tourism is without question our potential biggest, easiest and most appropriate earner of foreign exchange, being a low tech, low skills and labour intensive service industry.

Monetary reform will only come about as a result of a courageous political decision, which is unlikely without significant popular support and even pressure, though it is possible for it to be driven by enlightened, benevolent and committed political leadership. Either way, thorough research and economic modelling is needed as a basis for marketing the proposed reform and its planned benefits, as psychological factors increasingly affect economic decisions and trends.

Exactly the same reform could either succeed or fail depending on the degree of support or opposition it attracts from key leaders, particularly in the business sector. In this regard SA may well be a special case, as our political transition has prepared many business leaders to think and act in support of the common and longer term good, rather than supporting a corrupt status quo. And the wealthy are in the privileged position of being able to make voluntary economic sacrifices for the common good, for the sake of a more healthy, equitable and stable society for all including themselves. In fact, both business and political leaders, and the wealthy elite in general need to realise that this is possibly the only alternative to continuing to sit on the poverty problem, which in SA is a ticking social time bomb. If and when it explodes, it will take the whole economy down, as is happening in Zimbabwe. At the end of the day, greed will destroy a society, while giving and co-operation will create society in which the common good is realised for all.

To implement monetary reform, South Africa may well have to stand up against the prevailing global paradigm, and reject or moderate its various prescriptions. It would obviously be highly advantageous if a coalition of the G77 nations could be persuaded to do this collectively, but this would be unlikely, unless one country has shown the way and the benefits, as Malaysia started to do. In particular it may well be necessary to protect our economy from capital flight, and cheap imports (as the EU and G8 nations do, contrary to their preaching to the third world), and peg our exchange rate to prevent devaluation of the Rand. Diminishing foreign exchange and a resulting balance of payments deficit could well be a problem that will have to be planned for, although the Malaysians found that the consequences of disobeying the money masters were by no means as dire as predicted. Fortunately the SA government and economy have relatively little foreign debt for a developing country, and the mistake countries like Brazil made was to grow on borrowed foreign money, rather than their own debt free money.

South Africa is fast waking up to, and being severely strained by the harsh realities of life in the global economy, standing on the sidelines with begging bowl extended. At least we're only asking for foreign investment and not loans, but its not happening even though we obediently followed neo-liberal prescriptions, and the 'fundamentals' are in place. This has cost 7 to 800,000 jobs since 1994, resulting in significantly increased poverty for approximately 4 million dependants of those workers. We have also seen a massive outflow of local capital, and serious depreciation of the Rand. All told, the costs of following the neo-liberal prescriptions of the IMF have far outweighed the benefits, particularly for the poor. Holding out the begging bowl for foreign investment is mere wishful thinking. The predators swoop only where they smell profit, though cheap assets are also tempting, and certainly available due to the ongoing depreciation of our currency. But the lustre of our assets is tarnished by a world-beating crime rate and the prospect of further social instability, following the Zimbabwe model.
In conclusion we dare say that South Africa should be far better off if we went completely against the prescriptions of neo-liberal elite globalisation. This will essentially involve protecting our economy, industries and currency, and the citizens who depend on them. It may thus be necessary to consider monetary reform as an aspect of a larger strategy, which will entail partial de-linking from the global economy on terms advantageous to the majority of SA citizens. Monetary reform may just be the key to the revitalisation of the South African economy and society.

  1. Crause, H. The SANE Approach to Monetary Policy and Development, Dept. of Economics, University of Stellenbosch, 2000
  2. Huber, H and Robertson J. Creating New Money, New Economics Foundation, London, 1999
  3. Rowbotham, M. The Grip of Death - A study of modern money, debt slavery and destructive economics, 1998
  4. Rowbotham, M, op cit.
  5. Crause, H, op cit.
  6. Rowbotham, M, op cit.