In our current system, we give men like Bob Diamond the immense power to create money.
Need it be so?
The Positive Money movement wishes to change that, and give that power back to Government.
Henry Ford said: “It is well enough that people of the nation do not understand our banking and money system, for if they did, I believe there would be a revolution before tomorrow morning.” And it certainly seems true that most people don’t understand that money is created by private banks when they give you loans, having the quaint idea that the bank must have had somebody save that money first.
But that is not how our Fractional Reserve Banking system works, and banks just get to create money when they give you a loan.
Banks have not been the best corporate citizens of late, hardly responsible with their lending, but then we only need look back at the founder of the Rothschild’s dynasty at the start of the 19th century: “Let me issue and control a nation’s money and I care not who writes the laws,” and we can see it’s not a new trend.
So the Positive Money movement (oddly with some editorial backing from NZ Investor magazine), wants Government to issue money instead of banks, which would go back to the old days and only lend what they have in savings. They point out that the first Labour Government did that – using the money created to build houses and infrastructure, without causing any dangerous inflation.
Inflation becomes an additional source of revenue other than taxes – one that would have to be strictly controlled by a Monetary Policy Committee or similar, rather than left in the hands of politicians looking at a 3-year electoral cycle. It’s worth looking through a more detailed analysis of how such a system would work, but the short answer appears to be: better than the current one.
The current system relies on people and countries going into the banks’ debt for anything to happen. As Thomas Jefferson put it:
If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
And it is through banks inflating the money supply that we had our debt-fuelled boom in the noughties, followed by the GFC when Fear finally trumped Greed in the bi-emotional world of banking.
It is through Greed and inflationary bank-lending that our house prices keep rising, out of all proportion to incomes. The price of a house is no longer the capitalistic “what someone’s willing to pay”, but “who has the greediest bank, and what are they willing to lend”.
Over the last 30 years in the UK banks have caused 7.8% inflation pa through their lending, causing a 6-fold increase in house prices. Banks are slowly channelling all wealth into them, through interest: in 2008 NZ banks made $3.2 billion in profit, while all other companies on our stock exchange made a total of $2.89 billion. 95% of that profit went to Australia.
It is odd that the argument over banking and monetary systems has been going on for hundreds of years, yet almost everyone is unaware of it. Thomas Jefferson’s quote above is from 1808; The Wizard of Oz was written in 1900 as an allegory of monetary reform (the yellow brick road is the gold standard; Dorothy the everywoman/man, taking the Scarecrow – agricultural workers – and the Tin Man – industrial workers – with her, and her silver slippers are the ability to create money ourselves; The Wicked Witches of the East & West are Wall St Bankers and JD Rockefeller respectively; and the Wizard is the charlatan running our system, using illusion to fool the citizens in Oz to convince them he has real power – among other symbols). The Federal Reserve Act was only passed in 1913, with President Woodrow Wilson opining only a few years later:
I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.
Nixon abolished the Gold Standard only in 1971, with the world quickly following suit. Clinton only repealed part of the Glass-Steagall Act in 1999, allowing banks to blur the line between investment and retail banking. So things have most definitely not always been this way.
All too often we accept the current way as inevitable, or the only possible way. But almost always There Are Real Alternatives.
On the other hand we mustn’t fall into the trap that we need change, this is change, we need this. So, now that I’ve put forward Positive Money’s case, I’d like to hear the counter-arguments. Have a good read about how Full Reserve Banking works, and tell me: How would we transition from the banks current state to the one envisaged by Positive Money? Would we still have the necessary fluidity to provide capital to our productive businesses (already struggling for capital)? What else could go wrong?
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