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Here’s a statistic from Oxfam: ‘The world’s eight richest individuals own as much wealth as the poorest half of the world’s population.’[1] In other words, eight people own as much wealth as three-and-a-half billion people!

How did we come to this strange, and wrong, state of affairs? After all, isn’t money something we get by doing something for someone else?

Well, the answer to that question today is ‘No!’ Money is conjured from nothing by banks for people who want to make a profit; and the same amount of money is destroyed again once that profit is taken. When money is created and destroyed in this way, human freedom and interdependency are replaced with management, exploitation, and dependence upon remote powers. It’s no surprise that eight people have managed to grab so much, leaving the rest with so little.

Our money system was created for making war, which is robbery-with-violence made legal. For many centuries, war was considered glorious, and our banking system is a left-over from that time.[2] It is a continuation of war by other means.[3] It is doing more damage than ever in our world today, and we must reform it.

But let’s not blame it all on bankers! The truth is, we’re stuck in a system that people are frightened to reform: frightened even to think or talk about! The system supplies power to those who have it, so reform won’t happen until people are familiar with the facts. Monstrosities such as ‘quantitative easing’ show how far our established powers will go, to prop up and even extend the system.

How money is created today is no secret. You can read what I’m about to say (in more complicated language) on many central bank websites.[4] But it’s unfamiliar, so I’ll try to describe it.

Money itself is simple enough: it’s the system which is complicated.[5] We all know what money is. It’s a kind of property: mine is mine, yours is yours. We know its use: we exchange it for things that are up for sale. In theory, money can consist of almost anything, because it’s property in the abstract. But money today, as we know, consists of notes, coins, and numbers in bank accounts. So – what makes these notes, coins and numbers special? The answer is pretty obvious: the law. Try phoning up a police station and complaining that someone’s stolen your Monopoly money!

And it was new laws that first allowed money to be conjured up by banks. About 300 years ago, the English Parliament, consisting of rich men voted in by other rich men, passed laws to say that debt could be bought and sold as a form of property.[6] In legal language, debt became ‘negotiable’. These laws are still in force: they mean that debt from banks can pass from hand to hand as money. That is what our money, legally, is: debt from banks. The banks like to call it their ‘obligations’.

Negotiable debt is not just excellent at funding war; it is also good at siphoning money from working people to rich and powerful people. So, bit by bit, laws making debt ‘negotiable’ were adopted by governments and their patrons across the world.[7] Socialist, communist and fascist governments are no exception: – they monopolize the system for the benefit of the Party.[8] ‘Right’ and ‘left’ may disagree about many things, but both want power, so they prefer not to acknowledge or scrutinize the source of power in the modern world. There is a much-quoted saying, attributed to Henry Ford among others: ‘It is well enough that people do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.’

Today, debts from banks pass from hand to hand as currency. Perhaps you’ve seen it written on bank-notes. This twenty-pound note, for instance, has written on it in tiny writing: ‘I promise to pay the bearer on demand the sum of twenty pounds.’ A promise-to-pay is a debt. I am ‘the bearer’ of this note – so this note is a debt to me, from the Bank of England. It’s signed by the bank’s chief cashier, someone called Andrew Bailey. Is Andrew Bailey here? Can you pay me what you promise? What? You’ll give me another note for it? Or two ten-pound notes, did you say? Oh, thanks!

A hundred years ago, the bank’s promise did mean something. I could have gone to a bank and asked for twenty pounds in gold. Now, it means nothing. The note is fake debt: it pays only itself, because it has been privileged in law to become money.

Numbers in bank accounts are also debts, not from the Bank of England, but from high street banks. Debts from the Bank of England and debts from high street banks are interchangeable. You can ask your bank to exchange some of what it owes you for notes and coins, which are debt from the Bank of England. When too many people ask a high street bank for cash, it goes bust, because high street banks create much more debt than they hold in cash.

This collusion between governments and commercial banks has developed over many years and it means that today, all our money supply is fake debt.[9]

Once you get your head around the idea of fake debt, it’s easy to understand how a bank creates money. At the moment of making a loan, the bank creates two equal-and-opposite debts: one from itself to the customer, and the other from the customer to itself. The debt from the customer is real enough! But the debt from the bank is a fake. Instead of paying interest, it charges interest – on its own debt! It need pay nothing but itself, because the law says its debt is money.[10]

In more honest days, this used to be called the ‘magic trick of banking’.[11] Now, it is less talked about. We, the people, are not supposed to know how it works!

I’ll outline just a few of the ways in which bank-money, and other kinds of fake debt, are responsible for distress and damage in our world. There are many others that I won’t have time for.

First and most obviously, for every bit of bank-created money, a corresponding amount of unnecessary debt is introduced. Who pays the interest? Ultimately, consumers. Who gets the interest? Shareholders.[12] Inequality is enhanced.

Second example: Owners of industry naturally give out as little as possible in wages. Inequality is further enhanced. It becomes harder and harder for wage-earners to make ends meet: they take on secondary debt. Extreme inequality seizes up the economy. Imagine a café with a hundred customers. Between them they have a thousand pounds. If the money is evenly distributed, all of them can buy lunch. If one of them has all the money, only he can buy lunch. Soon, the café owner is broke, like most of his customers. That’s a simplified picture of economic paralysis due to inequality.

Third example: When money is generated from nothing in secret, corrupt payments become easy. As an illustration, I’ll just mention that each Russian kleptocrat owns his own bank.

Fourth example: rich countries find it easy to buy the assets of less developed nations. The richer a country, the more money it can create, because its debts are backed by assets. Their debts are trusted: a case of honour among thieves.

Fifth example: going to war becomes easy. A government doesn’t have to say to its citizens: ‘we’re raising taxes, so we can go to war’. It simply says to a bank: ‘create some money for us: we’ll make sure the taxpayers pay you back!’ The same goes for funding new weapons systems. And national debts are a help: governments create ‘negotiable debt’ for lenders, and charge taxpayers to fund the debt. Large-scale national debts were born at the same time as those new laws.

Sixth example: savings are devalued by the vast amounts of money and debt which are created out of nothing. Interest rates go down, to save the system from collapse. When that happens, pensions – the savings from a life’s work – pay a pittance.

Seventh example: house prices. Money is created for speculators, who push up prices, so that ordinary people find it harder and harder to afford a home.

Many other outcomes could be mentioned: unemployment, environmental damage, booms-and-busts are glaring omissions in this short account. But possibly the worst outcome of all is the kind of individuals and politicians that bank-money gives power to. Ownership and power go (mostly) to insatiably ambitious and irresponsible people – people prepared to ignore inconvenient truths and the destructive effects of their actions – and to the corporations and politicians they influence and own. The crimes committed under this system are immense. Billions of people are dispossessed into poverty and debt; millions are on the move, their lands possessed and exploited by fictitious money; many lives are destroyed by wars and the degradation of our planet. These toxic balloons are all inflated by the way we create money.

So, how do we reform? Half-measures – basically, tightening the regulations – have been tried many times, but they have always been side-stepped by the finance and banking industries. The latest manifestation of this side-stepping is ‘shadow-banking’. Three years ago, shadow-banking was creating value worth more than $34.2 trillion – that’s £4,500 for every person on the planet![13] Since then, figures are apparently a great deal higher – but oddly unavailable.

Luckily, there is a simple way to reform the situation. Before the laws I mentioned were passed, debt was a private matter contracted between two people. Courts would help lenders get their money back, but were reluctant to help recover debt sold on to someone else.[14] Reform is a simple matter of turning the clock back – and getting rid of those corrupt and corrupting laws.[15]

After reform, money would still be simple property, but it would no longer be debt from a bank. There would still be borrowing and lending; there would still be inequality. There would still be shares in ownership. Notes, coins and digits would transfer to the new system; management and supervision would continue, but under a different authority.[16] Certain innovations might prove useful in such a system: for instance, open ledger systems, such as blockchain. But the essential task of reform will not be technical: it will be legal: calling a halt to the robbery that feeds unaccountable power, war, environmental destruction, loss of human freedom and moral agency.

And then, the greatest criminal enterprise ever invented would come to an end. An era of peace, prosperity and freedom might possibly, just possibly – (we are human, after all!) – begin.


Thank you. There are print-outs of this talk available at the back of the hall, with notes to back up what I have said.

[1] https://www.oxfam.org/en/pressroom/pressreleases/2017-01-16/just-8-men-own-same-wealth-half-world

[2] The foundation of the Bank of England ‘set a precedent for proposals to accord special privileges to those who lent their money to the State for the prosecution of war.’ Ephraim Lipson, The Economic history of England (3rd ed., 1943) Vol ii, p.309.

[3] ‘The object of warfare is to take over a country’s land, raw materials and assets, and grab them. In the past, that used to be done militarily, by invading them. But today you can do it financially simply by creating credit.’ Michael Hudson, Interview, DemocracyNow! November 05, 2010. See also his Finance as Warfare, 2015.

[4] For instance, the Bank of England publication: Quarterly Bulletin 2014 Q1.

[5] J.K. Galbraith: ‘The study of money, above all other fields in economics, is the one in which complexity is used to disguise truth or to evade truth, not to reveal it.’ Money: Whence it Came, Where it Went (1976) p. 5.

[6] The two principal laws were: The Bank of England Act (1694) which established private credit as a form of government-backed money, and the Promissory Notes Act (1704) which established all promissory notes as negotiable debt backed by law.

[7] In 1845 the American judge Joseph Story wrote: ‘Most, if not all, commercial nations have annexed certain privileges, benefits, and advantages to Promissory Notes, as they have to Bills of Exchange, in order to promote public confidence in them, and thus to insure their circulation as a medium of pecuniary commercial transactions.’ Commentaries on the Law of Promissory Notes (1845) p. 10.

[8] In a system of pure communism, money creation is a monopoly; in the English system which now dominates the world, governments provide ‘reserve money’ – ‘cash’ –  which passes between banks, enabling a competitive system.

[9] The only real debts in the banking system are between banks themselves.

[10] In the words of economist Frank D. Graham, ‘the promises are never called and the bank is in the delightful position of living on the interest of what it owes.’ ‘Partial Reserve Money and the 100 Per Cent Proposal’ in The American Economic Review (1936).

[11] See, for instance, W.J. Thorne, Banking (1948) p. 133. ‘The banker’s tricks of the trade are, when they are explained, hardly worthy of even a third-rate magician.’ Thorne was himself a banker!

[12] As well as bank-money, powerful organisations conjure many other types of valuable debt out of nothing, among them bonds, money-market funds, shadow banking claims, national debts. The result is growing inequality. Those who work get less; those who exploit get more. Even the most basic statistics tell the story: in industry today, wages going to workers amount to 53% of the value of output; the rest goes to shareholders. Under feudalism, owners took far less than half!

[13] https://www.reuters.com/article/us-g20-shadowbanks-fsb/shadow-banking-activity-continues-to-grow-fsb-report-idUSKBN18617B

[14] ‘The general attitude of medieval law to the assignment of debts, and the special requirements which transfers had to satisfy in order to be legally valid, made the emergence of fully negotiable paper impossible.’ Postan, Medieval Trade and Finance (1973) p. 42, quoted in Usher, The Early History of Deposit Banking in Mediterranean Europe (1943) p.72.

[15] Should reform be accompanied by massive reductions in credit/money/debt? The only time parallel in history to our situation today is post-Nazi Germany. The Nazis had created so much credit/money/debt that the economy was in sclerosis. Over 90% of it was simply abolished. The economy jumped from sclerosis to healthy activity in one bound. Kramer, The West German Economy, 1945-1955, 1991.

[16] The question ‘What sort of authority?’ is answered by Henry C. Simons in ‘Rules versus Authorities in Monetary Policy’, one of his essays collected in Economic Policy for a Free Society (1948).

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