Chapter 7: Secrets, Ignorance and Lies: Money, Credit and Debt.


“The tyranny of fraud is not less oppressive than that of force.” John Taylor of Caroline, Virginia (1814).

Our money system relies on people not understanding it. If people understood it, they would demand reform.[1]

The most outrageous falsehoods are propagated daily about money and banking. Here are one or two examples:

‘A commercial bank is fundamentally nothing more than a middleman to put these two groups of people (investors and entrepreneurs) together in an efficient way’.[2]

This untruth is repeated regularly in education and the media, and most people believe it. The ‘middleman’ story is denied repeatedly and explicitly by authorities who know about the system, and are honest.

Here are some authoritative denials of the ‘middleman’ narrative:

The Bank of England: “One common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them…[this] ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money. …Rather than banks lending out deposits that are placed with them, the act of lending creates deposits – the reverse of the sequence typically described in textbooks.”[3]

Abbott Payson Usher (20th century banking historian): ‘The essential function of a banking system is the creation of credit, whether in the form of the current accounts of depositors, or in the form of notes. The form of credit is less important than the fact of credit creation.’[4]

Joseph Schumpeter (economist): ‘It is much more realistic to say that the banks ‘create credit’, that is, that they create deposits in their act of lending, than to say they lend the deposits that have been entrusted to them.’[5]

Charles Franklin Dunbar (19th century banking historian): ‘deposits are created by the act of the bank when loans are increased and cancelled when loans are repaid.’[6]

The truth today is: banks do not lend money that already exists; they are not intermediaries or middlemen; they create deposits (money) in the act of lending. This money then circulates in the ordinary way as money, making payments and going in and out of people’s deposit accounts.

Among the many bizarre results of this system is: if no one was borrowing from banks, there would be no money. The interlinked nature of bank-money and debt is explored further in Chapter Three.

Another assertion which defies common sense (and truth) about banking is that it is responsible for affluence in the modern world. According to this version, banks fund science, technology, development, entrepreneurship etc, and without them we would go back to the Middle Ages. Here is an example:

‘Abandoning fractional reserve banking would be the ultimate throwing-out of the baby with the bathwater. It would be like, after a particularly bad motorway pile-up, legislating to outlaw motor vehicles and return to the horse and cart.’[7]

The fact is, banks create and lend mostly to speculators and predators; they do not often create and lend money to people starting businesses.[8] Those who initiate businesses tend to borrow privately and expand on the basis of profits. Only later do the ‘big boys’ move in with newly-created money. Banks do not create affluence, they create the extreme inequality that plagues our world. Bank-created money also fuels a massive debt-creation industry (‘financial services’) devoted to creating value for the rich and debt for others.

The intention behind this chapter is to draw lines of connection between the money system and some of the bad things that go on in our world. Some of these bad things are inherently bad like war; others (such as inequality) are inevitable and acceptable in small doses, but bad in large.[9] An economist has made an analogy for the second type: a domestic cat is generally a well-loved addition to a home: enlarge it into a tiger, and it’s not such a blessing.[10]

The lines of connection I draw here are not simple lines of cause-and-effect. Many of the bad things listed happen anyway; the money-system just makes them worse. Most of my observations have been frequently made by others in the past, only to be forgotten and excluded from ‘accepted wisdom’. ‘It is a melancholy fact that each generation must relearn the facts of money in the bitter school of experience’ wrote the French economist Maurice Allais.[11]


There is an abundant choice of statistics to express the huge inequality in our world today. One of the most telling is Oxfam’s (2018) that forty-two people own more wealth than half the world’s population – that’s 3.7 billion people.[12]

Essentially, banks create money for borrowers. How does this relate to inequality? Borrowers borrow either for consumption, or to make a profit.

Loans for purposes of consumption are notoriously dangerous. Borrowers hope to be able to repay without having to sell their assets, but their hope is often misplaced.[13] As a result, many people who can’t make ends meet get into debt and eventually lose assets. It is very easy to borrow if you have sufficient assets, because if you cannot pay back, the law will seize your assets and give them to the latest owner of your debt. Many individuals and corporations make it their business to buy debt on the cheap and extract the full amount with the help of the ‘justice’ system.

When money is borrowed for profit, on the other hand, both parties – bank and borrower – expect a profit and have calculated that they will do so. The bank expects interest on the loan: the borrower’s profits must be extracted elsewhere and more than cover interest payments. When the profit comes from productive industry, this adds to production costs, and goods become more expensive. When the loan is made for speculation – say in housing – the price of property is driven up. Those who own property get richer.

As mentioned earlier, analyses of bank-lending indicate that very little new money is allocated to entrepreneurs, start-ups or people initiating productive businesses. At present in the UK, only 3% goes to productive businesses, according to economist John Kay.[14]

At the present time, a great deal goes to speculation in housing. This is what lies behind the ‘housing boom’, making it impossible for most young people today to own their own living accommodation. Meanwhile, the created money makes people with assets richer, raising prices through speculative investment. A classic bubble – only this one, with international and national support via money-creation by banks, seems to be growing and growing without bursting.

A great deal is also supplied to the finance industries, initiating and supporting forms of artificially created value for speculators and predators. After analyzing the workings of finance, Graham Hodgson concludes: ‘behind the operations of the finance sector, supposedly matching peoples’ savings to the financing needs of businesses, stand the banks, hosing in cascades of money, from which all involved can siphon off remuneration.’[15] This money is, of course, newly created from nowhere.

A large amount of finance goes to the purchase of existing businesses. For these purchases to turn a profit, the business must be made more ‘efficient’: more productive, less expensive to run. Costs must be cut: wages reduced, suppliers put under pressure, working conditions economised on, humans replaced where possible by machines, computers, artificial intelligence etc. Done in the name of increasing efficiency, the motive behind most of this activity is to increase profits for predators and reduce the amount going to those who already have less.

And after new money has done its work, the loan is repaid, money disappears, and more is created for a repeat performance.

Attempting to quantify the effects of these factors on inequality is impossible. A huge variety of activities are initiated by new money, each representing a different contribution to inequality. As outlined in Chapter One, all money is debt from a bank (either central or commercial). It is less obvious how much money is being created or cancelled at any given time, as loans are made and repaid.

It is perhaps worth noting that always and everywhere, the creation of new purchasing power out of nothing is an act of expropriation, no matter how dressed up it may be in the ‘plausible ethics of productivity’ or the seductive language of benevolent social management.

Extreme Inequality Seizes up the Economy.

Imagine a café with a hundred customers: between them, they have a thousand dollars to spend. All are thirsty, but only one has bought a cup of coffee. The café owner is puzzled; he’s not making any money. What he doesn’t know is that one person has all the money and the others are all broke. Soon, the café owner will be broke too. That is a simple picture of economic paralysis due to inequality. An economic historian puts it more seriously: ‘Production cannot go on unless there is a market for the goods.’[16]

Extreme inequality is good for no one. At one end of the scale there is poverty, disempowerment and displacement. At the other end there are the corruptions of wealth and power. The most significant inequality is not in income but in assets: in ‘what you are worth’. When politician Bernie Sanders said that ‘one family owns more wealth than the bottom forty percent of the American people’ he was not talking about their income but about their accumulated wealth.[17] Income inequality, however, is more present in most people’s minds – and in their daily concerns. The effects of bank-created money on income inequality have been investigated by Graham Hodgson in a paper available online.[18]

Socialist redistribution may put some restraint on the growth of inequality, but there is a price: ever-growing dependence of citizens on government. The drift to inequality cannot be restrained without introducing some justice into the money system itself.[19]

The Effect of Inequality on Freedom.

True freedom is crushed by great inequality. The majority become heavily dependent upon the few. In the words of the Victorian historian Lord Acton ‘Power tends to expand indefinitely … it is by the combined efforts of the weak, made under compulsion, to resist the reign of force and constant wrong, that liberty has been preserved.’[20]

It is foolish to expect reform to come from above, from those in power. Adam Smith (godfather of economics) warned: ‘All for ourselves and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.’[21] Or Michael Oakeshott: ‘It is mere foolishness to complain when absolute power is abused. It exists in order to be abused.’[22]

Humanity under Threat: A Particular Characteristic of Today’s Inequality.

Extreme inequality feeds and controls many of the evils that threaten our world. Our civilization has come to resemble the Titanic: inequality is the fog; icebergs are all around. Nuclear weapons and global warming are two looming icebergs.

Many civilizations have come to grief without threatening the continuity of human life on Earth. Today, the power of humanity to self-destruct has grown enormously.

Most worrying today is the globalization of power in a political-financial elite for whom ‘getting more’ seems to override all other considerations. Political representatives supposedly represent us all, but in reality they represent the interests of the different (or not-so-different) powerful factions that fund them. Representatives are chosen by powerful factions and a choice between them is offered up to voters: that is hardly ‘democracy’.[23]

Nature Degraded and Destroyed.

Devastation of the environment by industrial methods of farming is apparent today across the globe.

The role of bank-money in this is clear. Land traditionally farmed is purchased with newly-created money, and then given over to industrial farming methods which use chemical poisons, machinery and mass animal husbandry.[24] All of these practices contribute severe harm to the environment and to our future.

Industrial farming is justified by the assertion that food is produced more cheaply this way. This fact is, however, challenged in many recent studies.[25]

Even if the assertion were true, the simple fact of ‘cheaper food’ leaves out certain elements which give the lie to its supposed ‘economic utility’.[26]

First, those who have been displaced and who would previously have been fed by their own activities, must now be fed and sustained in some other way.

Second, long-term depletion and destruction of the environment harm prospects for future generations.

Third, those who work on industrial farms experience depression and illness, while the rest of the population are increasingly cut off from, and unfamiliar with, the natural world that sustains them.

Fourth, food produced in this way is usually less nutritious than traditionally produced food, and it frequently carries diseases such as campylobacteriosis and salmonella.[27]

Fifth, industrialised agriculture contributes to the huge loss in diversity of species which is, in the opinion of UNESCO, as threatening to our future as climate change.[28]

A simplified picture of the effects is a farm of, say, eight hundred acres: whereas once it sustained hundreds of families, it may now be owned by one person and worked by one other.

As usual, the virtues of ‘efficiency’ and ‘productivity’ cover the true motives behind the changes, which are to profit remote ‘investors’ who in the case of large-scale industrial farming do no contributory work.

Nor is the ocean exempt: industrialised fishing is robbing it, too of diversity and life.

Economic Expansion and the Environment.

Economies based on bank-money require constant expansion, even if only to avoid seizing up because of ever-growing inequality (see the café example above). Needless industrial expansion, and the creation and satisfaction of more and more needs, causes pollution, destruction of nature and depletion of natural resources, creating life-threatening conditions for all humanity.

Economic growth comes in many different varieties. Human labour and consumption do not necessarily have to destroy the environment. It seems the main culprit in environmental destruction is the amoral nature of corporations, devoted to maximising profits whatever the consequences.

Corporations and Loss of Moral Freedom.

Unlike humans, corporations live (potentially) for ever and publish their accounts for all to see. This makes them ideal vehicles for borrowing huge amounts of money conjured from nothing by banks and their financial intermediaries. This money is used to swallow businesses built by others.

Corporations buy up the world, often from those who have cultivated it responsibly for generations, and exploit it ruthlessly, mostly for the profit of shareholders.

Commentators from the 13th century on have reminded us that corporations are not subject to moral and legal constraints that affect the behaviour of individual humans. “How can a corporation be expected to behave itself, when it has no body to imprison or kick, no soul to damn?”[29]

Darwin reminds us that moral constraints are as important as intelligence for the survival of our species. ‘I fully subscribe to the judgment of those writers who maintain that of all the differences between man and the lower animals, the moral sense or conscience is by far the most important,’ he writes. ‘The development of the moral qualities is a more interesting problem’… ‘As they are highly beneficial to the species, they have in all probability been acquired through natural selection.’[30]

Commercial profit-seeking corporations are an obvious threat to our continued survival on Earth.[31] They institutionalise the worst and most dangerous tendencies of human behaviour, regulating and influencing human activity away from caring and morality, towards maximising profits for people not involved in the work at hand.

National Debts.

Laws allowing debt to be bought and sold favour people with wealth. When debt can be bought and sold, lenders to governments get a tradeable debt – a ‘bond’ – in return for what they lend. As Adam Smith pointed out, these bonds may be more valuable than the money lent.[32]

Not surprisingly, when money can be borrowed in this way, national debts grow enormously. Governments naturally like to spend, and when lenders are pre-disposed to lend, there is little to restrain the growth of national debts. In addition, national debts make a bond between government and the rich which undermines democracy. This cementing of relations between government and its richer citizens has been a consistent theme of public debt throughout the centuries.[33]

‘Bonds’ are a massive creation of value for the government and the lending class. The new wealth becomes collateral for more borrowing – for the creation of more money and for an inflation of the money supply, which robs everyone else (whose money becomes less valuable).[34] And it especially robs taxpayers, who pay the interest on this created value. This passes unopposed, because in the short-term citizens do not notice it (unlike with taxes).

After the English Parliament made debt into a tradeable commodity, the national debt of England exploded. In the half-century after the foundation of the Bank of England, national debt went from 6% of national income to 137% of national income.[35] By 1783, “Three quarters of the annual budget of the government were absorbed in (paying) dividends.”[36] The same sequence has occurred in other countries across the world.

In the words of Montesquieu, national debt ‘takes the wealth of the state from those who work and giving it to those who are idle’.[37] Strangely, many of those classified by Montesquieu as ‘idle’ now work very hard indeed; the competition for unmerited wealth has become fierce and intense – and the rewards become ever larger.

Banks, too, willingly lend new money for governments to spend – until a nation’s debt becomes too great for taxpayers to reliably fund it.

There is an often-repeated cliché that ‘the national debt is a way of making our children and grandchildren pay for what we use today’. This is not correct: everything, from missiles to food, has to be paid for before it is used. National debts create what economists like to call ‘near-money’: assets (bonds) which act as money within the class of those who possess them, circulating in a money-like fashion. Furthermore, the debts of a government act generally as collateral for yet more money-creation.

Lenders are happy to supply money for governments, because they are getting ‘near-money’ assets in return. Meanwhile, tax-paying citizens are paying interest to owners of these newly-created assets.[38]

Descendants of passive citizen-borrowers also, of course, also pay interest: they inherit the debts. National debts in some countries – the U.S. for example – have reached such dizzying heights that interest payments, even at very low rates, represent a substantial day-to-day drain on incomes.

Private Debt: Booms and Busts.[39]

Booms-and-busts prepare the ground for large increases in private debt.[40]

Banks respond to a boom by lending with gusto to all and sundry, creating new money on the collateral of homes, businesses and other assets. For a while, all seems rosy: then growing inequality makes the worm turn: not enough goods are being purchased, and businesses are delivering less profit. Profits and incomes dry up, and banks call in loans. Borrowers sell assets to pay off their debts, or banks seize their assets as collateral. The most familiar examples of this are among people who take out mortgages.[41] .

When banks call in debts, they are destroying money. Economists have called this the ‘perverse elasticity’ of bank-created money – money is easy-to-get when you don’t actually need it, and near-impossible to get when you need it most.[42]

Today, when the quantity of debt (personal, corporate and national) is so large that it cannot be funded at conventional rates of interest, governments drive down interest rates, making money even cheaper to borrow for those who already have it. Speculation replaces investment: new money is used to create ‘bubbles’ in markets such as housing and real estate. In a world of created debt, there are always opportunities for speculators.

Huge profits may be taken by professional speculators before, during and after the business cycle. A skilful speculator will change techniques depending on the stage in the cycle, just as a good general knows how and when to go to battle.

Busts ought to rectify the situation somewhat by reducing capital values and debt, but today’s lawmakers and regulators intervene in the interest of keeping the system going. As well as massively reducing interest rates, asset-values are propped by devices like ‘quantitative easing’.[43] These efforts merely prolong the recession or depression. The underlying cause – the gulf between massive wealth on the one hand and poverty and debt on the other – remains.

Eventually, economies tend to emerge from recessions and depressions. Wars, expanding markets, debt reduction and default, falling capital values and other developments may each or all play a part in reducing or moderating inequality; upon which the cycle must begin again.[44]

Arms Proliferation and War.

When money can be created and lent in private, governments indulge in arms manufacture and purchase without permission from their citizens. Governments naturally compete to acquire arms: if your neighbour gets missiles, you want them too.  Arms become more and more threatening in both quality and quantity. There is pressure to test new weapons in ‘battlefield conditions’ and once a government has weapons, it is obviously more likely to use them.

Banks feed a vicious circle in arms production by eagerly creating new money for buyers, sellers and manufacturers. Citizens, unaware even of how money is created, remain unaware of how their economies are skewed to arms purchase and/or production. If debt was non-negotiable, governments would have to borrow pre-existing money to finance arms purchases. In normal times, ‘lend me some money to buy weapons’ is not a very popular request.

There is another very important factor that encourages arms-production and war when money is created and destroyed as debt. As outlined above, massive inequality is a persistent problem in such economies. When people can no longer afford to buy all of what is produced, economies begin to seize up.

In these circumstances, arms production and war act as economic stimulants. The arms industry and the armed forces consist of workers making products that will not be bought by other citizens (even in America, citizens do not yet buy missiles and bombs). The wages of arms-workers and soldiers are spent on products made by other workers. In economic terms, this somewhat rectifies the ‘demand deficit’.[45]

In her book Freedom and Necessity, economist Joan Robinson outlines how arms spending was manipulated to provide financial stability during the ‘Cold War’ (1947-1991).[46] She also pointed out the perversity of the situation.[47]

‘Rationality requires that the prime aim of policy should be to make war obsolete and to find alternative ways of dealing with the problems that give rise to it; but it is precisely the economic success of the military-industrial complex that puts the greatest obstacle in the way of any such attempt.’

Arms production and war would not be economic stimulants in a just economic system; they would be a drain. In the system we have today, however, manufacturing arms to be sold abroad is even ‘better’ than producing them for home use: shareholders get richer, wages are spent in the home country, death and destruction occur somewhere else.

The ‘economic stimulus’ of arms production and war is responsible for pervasive hypocrisy in international affairs, as politicians and diplomats become salespersons for armaments to sustain the economy. Another outcome is ‘proxy wars’ fought in unstable countries, stirred up by nations who manufacture arms.[48] The five permanent members of the UN Security Council (China, France, Russia, the United Kingdom and the United States) are tasked with maintaining global peace and security, but companies based in these nations manufacture 71 per cent of the world’s arms, and the same arms companies contribute heavily to political campaigns.[49] Sometimes the same government will fund several opposing factions: the activities of the United States in Central America are well-documented. Syria today is perhaps another example.

As a result, whole nations are devastated by wars stirred up to reinvigorate the domestic economies of superpowers.


Corruption is made easy when money is created in secret and out of nothing.[50] In many countries, bankers and government officials are family relations, or involved in business together. In Bangladesh, ‘some $565 million in assets are said to have been looted from the state-owned BASIC Bank between 2009 and 2012, yet the scam’s suspected mastermind, a former chairman of the bank, wasn’t troubled by the anticorruption commission investigating the fraud, reportedly thanks to his political connections.’ Banks in Bangladesh ‘are regularly recapitalized by the government—to the tune of about $640 million for fiscal year 2014 and, it is expected, more than $700 million for fiscal year 2015.’[51] In Malaysia, a ‘billion-dollar political scandal’ involves two brothers, a banker and the Prime Minister.[52] In Moldova, a large proportion of the wealth of the country has been looted and relocated with financial partners, mostly in Russia.[53]

Corruption of Capitalism

Capitalism supposedly depends upon savings lent to entrepreneurs. The idea is that banks serve savers who have carefully accumulated savings and provide a service by investing those savings. Today, genuine savings are dwarfed by bank-created capital. Banks create money merely by typing digits; only people who cannot borrow from banks go to the difficulty and expense of borrowing genuine savings – perhaps from personal contacts, or perhaps from crowd-sourcing via the internet. As already stated, most bank-created money goes into speculation in asset prices, not to start-up business.[54] This makes a mockery of capitalism, its moral justification and practice.

Extremist politics

The monetary system allots huge and unaccountable powers to government. Party politics means that a change in government results in exploitation by a different cabal of interest groups – nothing more.

It’s an extraordinary fact that George Washington saw the development of party politics as early as 1796. He wrote his ‘farewell address’ as a letter to fellow-citizens warning of dangers ahead.

‘The alternate domination of one faction over another, sharpened by the spirit of revenge, natural to party dissension, which in different ages and countries has perpetrated the most horrid enormities, is itself a frightful despotism. But this leads at length to a more formal and permanent despotism. The disorders and miseries, which result, gradually incline the minds of men to seek security and repose in the absolute power of an individual; and sooner or later the chief of some prevailing faction, more able or more fortunate than his competitors, turns this disposition to the purposes of his own elevation, on the ruins of Public Liberty.’[55]

This has become true almost to the letter today. Although citizens know they are being cheated, they do not understand the process. Instead of seeking intelligent reform, they turn to unsavoury and dangerous monomaniacs, pathological power-seekers, to lead them out of the mess. The world is becoming a more dangerous place, domestically and internationally. Examples of this today are everywhere.

Predation, national and international

As already mentioned, banks lend newly-created money to buy assets and labour; the borrower’s projected profits must exceed the cost of borrowing. The moral virtue of ‘efficiency’ is invoked to justify loss of freedom and property among those who are bought out or dispossessed by the new money. This ‘virtue’ hides the actual motive, which is the expropriation of assets and profits.

The system is easy to understand. Governments provide ‘reserve’ on demand for banks; banks create money and lend it to individuals, corporations, hedge funds and merchant banks for the profitable purchase of land, assets and labour abroad. Money is also provided for corrupting officials in the victim country.[56]

In less secretive days, the process was more openly talked about. For instance, a conversation reported by William Nassau Senior in 1882: “foreigners can afford to give more for land than a native can… let a Turk once mortgage his land to a Christian protégé, and he will soon cease to have any property in it. In a very few years, the mortgage money will exceed the value of the fee simple.[57] A manifestation of this practice today is ‘microcredit’. Small loans, advertised initially as a community benefit, are sold on to large finance companies who then claim the land for corporate agribusiness.[58]

Countries with sophisticated banking industries plunder internationally.[59] In the words of Henry C. Simons, ‘each national currency is a fractional reserve bank’ creating money for plunder.[60] Governments and their finance systems create money for buying assets abroad, hoping that the money will stay in foreign countries, or circulate as international currency, and not return to purchase assets at home.

Countries with currencies that are stable and widely-accepted enough to be held as ‘secure investments’ are at an advantage: other countries treat these currencies as valuable assets and keep them. But it is a dangerous business. Unlike the debts that banks supposedly owe to their customers, debts to foreign countries do not disappear. The U.S. currently owes China, Japan and other countries many trillions of dollars.

Compound interest is a notorious device for robbing those unfamiliar with the tricks of finance. Money is created out of nothing, lent as debt, and high rates of interest are charged. Internationally, the money is often a bribe to secure some trade advantage, and is squirreled away by corrupt officials, perhaps lodged back in the banking system of the country that lent it. Whole countries are impoverished by this practice. Nigerian President Obasanjo said at the G-8 summit, 2008: ‘If you would ask me ‘what is the worst thing in the world?’ I would say, ‘compound interest.’ We had borrowed around 5 billion dollars by 1985-6. To date, we have paid back 16 billion dollars. Now we are told we still have 28 billion dollars of debt.’[61]

Power in the wrong hands

Other malign outcomes of bank-money are ecological devastation by industrialized agriculture, easy formation of monopolies, and commercialization of culture. Its worst effect overall, however, is that it gives too much power to ambitious and irresponsible people who ignore the destructive effects of their actions.

The crimes committed by our system of money and finance are immense. Billions of people are dispossessed into poverty and debt; millions are on the move, their lands possessed and exploited by money created especially for that purpose; countless lives are being destroyed by wars, climate change and the degradation of our planet.

Negotiable debt has been a cause of crisis in the distant past. Debt slavery[62] and tax farming[63] are other examples of debt made tradeable which had momentous consequences for civilization. We humans, it seems, learn little from past mistakes and therefore, as the expression goes, we are doomed to repeat them, each time more destructively.

Unless, that is, we wake up to the need for reform; which would be simple.



[1] The classic quote for this is: ‘It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.’ Like many classic quotes it has been attributed to many people over the years, but most usually to Henry Ford.

[2] A Penguin Book: Why Wall Street Matters by William D. Cohan (p.27).

[3] Quarterly Bulletin 2014 Q1, ‘Money creation in the modern economy.’

[4] The Early History of Deposit Banking in Mediterranean Europe (1943), first sentence!

[5] History of Economic Analysis (1954) page 1114.

[6] The Theory and History of Banking 1893 p. 48.

[7] The London Times, June 10th 2018.

[8] Many studies confirm this assertion: see, for instance, NEF’s ‘Our Friends in the City’ available at:

[9] Henry C. Simons puts it well: “A substantial measure of inequality may be unavoidable or essential for motivation; but it should be recognized as evil and tolerated only so far as the dictates of expediency are clear.” Economics for a Free Society (1948) p.52.

[10] I can’t remember, or find out, who wrote this; if anyone knows, please tell me.

[11]Arrow and the Foundations of the Theory of Economic Policy’ (Feiwel, 1987) p. 491.


[13] The cycle of borrowing-and-loss is exacerbated by the tendency of bank-money to cause booms and busts: see below.

[14] ‘Lending to firms and individuals engaged in engaged in the production of goods and services – which most people would imagine is the principle business of a bank – amounts to about 3 per cent of that total (see chapter 6)’. Other People’s Money (2015) p.1.

[15] Graham Hodgson, ‘Banking, Finance and Income Inequality’ (Positive Money, 2013).

[16] Alexander Gray, The Development of Economic Doctrine (1931) p. 326.

[17] Widely reported Jan/Feb 2016 as part of Sanders’ campaign to become presidential nominee. Sanders also points out that Walmart employees are paid so little, the government has to supplement their wages; thus the richest family in America is also the biggest profiteer from welfare payments.

[18] For a detailed analysis of how banking and finance contribute to income inequality see Graham Hodgson, ‘Banking, Finance and Income Inequality’ (Positive Money, 2013).

[19] ‘There is no doubt about the general character of the institution of property most friendly to freedom: it will be one which allows the widest distribution, and which discourages most effectively great and dangerous concentrations of power.’ Michael Oakeshott: ‘The Political Economy of Freedom’ in Rationalism in Politics (1991) p. 393.

[20] Lectures in Modern History Liberty Fund Edition p. 289.

[21] Wealth of Nations (1776) Book III, Chapter IV.

[22] Rationalism in Politics (1991) p. 395.

[23] For an analysis of this idea see In the Name of the People by Ivo Mosley, 2013.

[24] It is incorrect to think, ‘well, they could have borrowed the money anyway, banks or no banks.’ The example cited earlier, of William III trying to borrow for war, shows that when money is dispersed in private hands, borrowing for destructive activities is much harder, and often impossible. When individual decisions are involved, as opposed to corporate profit-led criteria, morality becomes a significant factor.

[25] For instance:, (download) FSTbookletFinal.pdf

[26] ‘Our current food system has a number of hidden costs to the natural environment and human health, far outweighing the benefits of cheap food. These costs aren’t paid for at the grocery checkout counter, but eaters and consumers still bear the brunt of this financial burden through taxes and healthcare costs.’

[27] ‘Cheap Food Costs Dear’ published online by

[28] ‘Biodiversity is the living fabric of our planet. It underpins human wellbeing in the present and in the future, and its rapid decline threatens nature and people alike.’ Unesco’s Commitment to Biodiversity: Connecting People and Nature for an Inspiring Future. UNESCO, 2018.

[29] The earliest version I have come across of this is from Giovanni d’Andrea (d. 1348): “universitas non est capax poenae capitalis, corporalis, spiritualis . . . cum corpus animatum non habeat ad hoc aptum.”

[30] These sentences are from Darwin’s Descent of Man: free download available at Internet Archive.

[31] F.W. Maitland is by far the most interesting writer on corporations. Most of his essays on the subject are gathered in State, Trust and Corporation edited by David Runciman & Magnus Ryan, Cambridge University Press.

[32] “The security which it (the government) grants to the original creditor, is made transferable to any other creditor; and from the universal confidence in the justice of the state, generally sells in the market for more than was originally paid for it. The merchant or monied man makes money by lending money to government, and instead of diminishing, increases his trading capital.” Wealth of Nations (1776) Book 5, Chapter 3.

[33] See for instance Luciano Pezzolo, ‘Bonds and Government Debt in Italian City-States 1250-1650’ in The Origins of Value, OUP 2005.

[34] There has been fierce debate over whether bonds should be recognised as money. Perhaps the simplest resolution is to note the connection: bonds are used as collateral for the creation of new money.

[35] Mitchell, British Historical Statistics (1990) and Ritschl, ‘Sustainability of High Public Debt’ (1996).

[36] Leland Hamilton Jenks, The Migration of British Capital to 1875 (1927) p. 14.

[37] De l’Esprit des Lois (1748) Part 4, Book 22, Chapter 17.

[38] Just as banks create money as negotiable debt, so governments create debt as a negotiable commodity. The difference is that banks charge interest on what they owe whereas citizens pay interest on what governments owe. Here we see the worst of all collusions between governments and ‘the money-power’.

[39] Schumpeter, a leading 20th century economist, asserted that the argument used in this paragraph to explain business cycles is ‘contemptible’ and ‘beneath discussion’. Apparently, ‘it involves neglect of the elementary fact that inadequacy or even increasing inadequacy of the wage income to buy the whole product at cost-covering prices would not prevent hitchless production in response to the demand of non-wage earners either for ‘luxury’ goods or for investment.’ If this were true, the trillions being held today (2016) at near-zero interest rates would be busy employing the poor to make luxury goods and build new factories.

[40] The process used to be much more widely discussed. For instance, William M. Gouge, in his authoritative book A Short History Of Paper Money And Banking In The United States (1833, p.26) describes how during business cycles ‘Multitudes become bankrupt, and a few successful speculators get possession of the earnings and savings of many of their frugal and industrious neighbors.’


[42] Lester, Richard A. Monetary Experiments (1939, 1970) p. 291; and on p.292, ‘If the monetary system is to moderate rather than magnify the business cycle, money must be segregated from banking.’

[43] ‘Quantitative easing’: the government creates ‘reserve’ money to buy assets such as its own debt; this reserve goes to the banks, relieving their over-stretched lending.

[44] ‘Business cycles’ do not seem to have existed without bank-money and negotiable debt.

[45] During the ‘arms race’ in the Cold War, the U.S. enjoyed a rare stretch of financial growth and stability: between five and ten percent per year for several decades. More examples: today, Russia is resorting to massive armaments production to restore spending money to a plundered populace; and North Korea (where the credit-creation facility belongs not to private banks but to the state) builds nuclear weapons despite, or because of, the poverty of its people.

[46] ‘Whatever its causes, the consequence of the Cold War was to provide an outlet for government expenditure which did not compete with private enterprise and which did not saturate demand by producing anything that the public could consume.’ Joan Robinson, Freedom and Necessity (1970) p. 86.

[47] Joan Robinson, Freedom and Necessity (1970) p. 87.

[48] Examples: ‘In the first six years of the Obama administration the United States agreed to transfer nearly $50 billion in weaponry to Saudi Arabia’ which then went to war with one of the poorest countries on Earth: Yemen.

[49] Roslyn Fuller, Beasts and Gods: How Democracy Changed Its Meaning and Lost its Purpose (2015) page 159.

[50] See Karen Dawisha, Putin’s Kleptocracy: Who Owns Russia? (2015).

[51] New York Times, April 11 2016, report by Joseph Allchin: ‘Bangladesh’s Other Banking Scam’.

[52] New York Times, April 18 2016, report by Richard C. Paddock: ‘Banker Brother of Malaysian Premier Steps Aside From Posts Amid Inquiry’.

[53], August 29 2016, report by Luke Coffey: ‘A Tangled Web of Corruption is Strangling Moldova’.



[56] Well-documented in, for instance, The Looting Machine, by Tom Burgis (2015).

[57] Conversations and Journals in Egypt  (1882) p.195.

[58] and on the resulting suicides among poor farmers:

[59] David Korten writes: ‘During my years working in Africa, Asia and Latin America, I came to realize that what we call “development” is in fact a process of transferring control over the basic resources essential to daily life from the people who depend on them to foreign corporations, whose primary interest is financial gain.’ Foreword to Marjorie Kelly, Owning Our Future (2012).

[60] Economic Policy for a Free Society (1948) p.261. Available online at Internet Archive.

[61] Quoted in Margrit Kennedy, Occupy Money (2012) p. 18. From the same book, same page: ‘In 2008 developing countries were paying back $13 for every $1 they were receiving in development aid’.

[62] Michael Hudson ‘Debt Slavery: Why It Destroyed Rome And Why it Will Destroy Us Unless It’s Stopped’ in Counterpunch, December 2nd 2011.

[63] Mary Beard ‘Modern tax farming and the Roman dangers of private enterprise’ in The Times Literary Supplement, August 15th 2012.

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One reply on “Chapter 7: Secrets, Ignorance and Lies: Money, Credit and Debt.”
  1. “….if no one was borrowing from banks, there would be no money.” Not true actually.

    At least if no one borrowed long term from banks long term (e.g. for mortgages), it would still be perfectly possible for people to borrow specifically for the purpose of having a stock of money with which to do day to day business. Indeed, I have no doubt that a proportoin of loans obtained by firms from banks are SPECIFICALLY for the purpose of having a stock of money with which to do daily transactions.

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