Bill Totten's Weblog

Tuesday, September 29, 2009

The Root of the Present Crisis and Its Cure

Who Should Create the Money Supply?

Should It Be Created as Debt or Debt-Free?

by James Robertson (April 06 2009)

1. Who decreed that 21st-century societies must depend for their supply of money on banks creating it for their own profit? Not God; no faith scriptures teach it. Not Nature; winds, tides, plants, trees, animals - none use money. Humans made this system work as it does. Intelligent humans can reform it.

2. Most of the money now used in the international economy is money created as debt in the currency of one country, the US dollar. In national economies most of the money now used is created by commercial banks as debt, written into their customers' accounts as loans. (In the UK, for example, less than percent is created as coins and banknotes by public agencies, and over 95% by commercial banks.) Central banks try to use changes in interest rates to control how much money the banks create.

3. That isn't effective. All the ninety recent credit booms and busts in various parts of the world have taken a similar form. The banks have hugely profited by creating too much money in the booms, and have then received huge bail-outs in the busts in order to reactivate their privilege of providing the money supply.

4. The conventional response to the present crisis is now combining a massive increase in future debt with new top-heavy regulation in order to reactivate the banks' privilege once again. These features of the new "financial architecture" are crazy. They ignore what first-year students of architecture are taught: see that the foundations are sound before you construct extensions to the upper floors and overload them with heavy burdens. The foundations of "financial architecture" are, of course, money and how it is created.

5. International monetary reform has now been proposed by Brazil, Russia, India and China, to replace the US dollar with a more genuinely international currency administered by an international authority.

6. Shouldn't national monetary reform follow that model? It would include:

* normalising "quantitative easing" by transferring responsibility to a nationalised central bank to create the debt-free additions to the national money supply which it judges to be in the public interest;

* requiring the central bank to give the money to the government to be spent into circulation under normal democratic budgetary procedures;

* making it a crime, like forging coins and counterfeiting banknotes, for anyone other than the central bank to create bank-account money; and

* denationalising recently nationalised commercial banks to compete unsubsidised in the market for borrowing and lending existing money.

7. For practical details, including safeguards against governments misusing the central bank's new function for their own political purposes, see:

* The American Monetary Institute's website -

* My Newsletter 22 and the accompanying links -

The contents of this Note may, but need not, be attributed to its author.


After studying classics, history and philosophy at Oxford University, James Robertson worked in government in London. He was on Prime Minister Harold Macmillan's staff for his "Wind of Change" tour of Africa in 1960, and then spent three years in the Cabinet Office. Then he became director of inter-bank research for the big British banks. Since the 1970s he has been an independent writer and speaker. In the mid-1980s he was a prominent co-founder of The Other Economic Summit (TOES) and the New Economics Foundation. His best known book is probably The Sane Alternative (1978, 1983). Recent books and reports include:

Transforming Economic Life (for UK Schumacher Society, 1998);

The New Economics of Sustainable Development: A briefing for policy-makers (for the European Commission, 1999) -
a) Kogan Page, London,
b) Editions Apogée, Paris (as Changer d'Economie: ou la Nouvelle Economie du Développement Durable),
c) Office for Official Publications of the European Communities, Luxembourg.

Creating New Money: A Monetary Reform for the Information Age, with Professor Joseph Huber (for New Economics Foundation, 2000).

In October 2003, at the XXIX annual conference of the Pio Manzu Research Centre, Rimini, Italy (closely associated with the UN), he was awarded a gold medal for his "remarkable contribution to the promotion of a new economics grounded in social and spiritual values" over the past 25 years. In a session on "Sharing Limited Resources And A Change Of Course" he gave a paper on "The Role of Money and Finance: Changing a Central Part of the Problem into a Central Part of the Solution".


Bill Totten


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