Bill Totten's Weblog

Wednesday, September 22, 2010

Money Reform Ideas Begin to Emerge

Alistair McConnachie examines the extent to which "quantitative easing" is similar to our proposals and considers objections to the idea that a central bank or "the government" should create money.

by Alistair McConnachie

Prosperity (January 2009)

Slowly, the credit crunch is allowing Money Reform ideas to emerge into view, albeit in problematical contexts. For example, articles have started to appear in the mainstream press concerning the idea of "government creating money".

These articles almost always raise the two spectres of "the Weimar Republic" and "Zimbabwe" in an effort to discredit the idea, and to suggest that it would be inflationary. They tend also to associate the idea with words and phrases intended to scare and to spread the notion that it is an irresponsible policy.

For example, Edmund Conway in the Sunday Telegraph said a "central bank printing press is a nuclear weapon, highly inflationary in the wrong hands, as demonstrated by Weimar Germany and Zimbabwe". Although he did go on to say that "in the right circumstances, and in the right doses, such lethal tools can be put to good use". {1} At least he acknowledges it's possible!

Janet Daley spoke about "a move that would be truly terrifying in its boldness. Serious thought is being given to the Weimar solution." {2} Clever phrase that: "the Weimar solution"! Everyone knows that was no solution at all!

Distinguishing Our Proposal

Money Reformers propose that a democratically-accountable body (it can be a department of the Bank of England) will create the money, and the government will invest it into society - into the public and private spheres of the economy - in order to generate the wealth and savings upon which a healthy economy, and a healthy banking system depends. The private banking system will then compete to attract this money into its own savings accounts and build up its capital reserves this way.

This will be done at the same time as the private banks are either forbidden from creating money completely, or have severe credit controls imposed on their ability so to do - which will prevent the risk of inflation.

In this way, Money Reformers advocate putting the economic horse before the banking cart!

This reform is quite different from what is presently being proposed. Under the absurd term of "quantitative easing" it is being proposed that the Bank of England will create new money out of nothing (as is its right) but - and this is a big error - this money will be given to the private banks!

It is proposed to swap this new money for toxic bank assets in order to "flush the banks with cash". This is far removed from what Money Reformers propose. It is giving the money to the banks rather than investing the money in society.

It is just another bail-out of the banks and in that sense it is very bad policy. Giving money to the banks in this way could also allow the banks to use this money as a new base upon which to multiply their lending ability - known as the fractional reserve - and thereby it could create inflation when a lot of new private bank-created money comes into society.

Simply put, "quantitative easing" is intended to allow the banks to create more money in order to indebt more people; to find new ways to keep the present debt-based system going - to keep putting the banking cart before the economic horse.

A Window of Opportunity Opens

Nevertheless, as Money Reformers we now have one of our key principles acknowledged as correct and possible!

We have always said that the Bank of England could, if it wanted, create new money out of nothing - and this is now being acknowledged by mainstream bankers, economists and commentators! Thus, Money Reformers have a window of opportunity to change the terms of the debate our way.

For example, we can point out that instead of asking whether it is a good idea for the central bank to create money, we should be asking, "If it can create money out of nothing, why does the government have to borrow from the private banking system in the first place - and thereby indebt us, the taxpayers, to these private banks?"

Weimar Germany

We are not advocating "the Weimar solution" because how the Reichsbank - a private bank - ruined the German economy has nothing to do with how we are proposing to use the publicly-owned Bank of England to properly manage the British economy.

The Reichsbank was a private bank which debauched the German currency for its own private profit!

Stephen Zarlenga (Prosperity, April 08) dealt with this in his massive work of monetary history, The Lost Science of Money (2002):

The great German hyper-inflation of 1922-23 is one of the most widely cited examples by those who insist that private bankers, not governments, should control the money system. What is practically unknown about that sordid affair is that it occurred under the auspices of a privately owned and controlled central bank.

Up to then the Reichsbank had a form of private ownership but with substantial public control; the President and Directors were officials of the German government, appointed by the Emperor for life. There was a sharing of the revenue of the central bank between the private shareholders and the government. But shareholders had no power to determine policy.

The Allies' plan for the reconstruction of Germany after World War One came to be known as the Dawes Plan, named after General Charles Gates Dawes, a Chicago banker. The foreign experts delegated by the League of Nations to guide the economic recovery of Germany wanted a more free market orientation for the German central bank.
Schacht relates how the Allies had insisted that the Reichsbank be made more independent from the government:

'On May 26 1922, the law establishing the independence of the Reichsbank and withdrawing from the Chancellor of the Reich any influence on the conduct of the Bank's business was promulgated'.

This granting of total private control over the German currency became a key factor in the worst inflation of modern times. {3}

Therefore, as Zarlenga goes on to elaborate, German hyper-inflation did not occur as a result of the German government creating money, but rather it was a result of the complete privatisation of the German central bank, the Reichsbank, as part of the Allies' post-World War One free-market plans for the German economy.

The worst inflation of modern times occurred as a result of the privately-controlled central bank manipulating the German economy for its own private profit.


We are unsure how the Zimbabwean economy got into such a mess, but we are presuming it has something to do with the fact that the place is a totalitarian, lawless basket-case, run by a lunatic.

The Zimbabwean government and its considerable problems of governance - which are manifest and manifold - cannot remotely be compared to Britain's government!

Secondly, and as a result of its incompetent government, the Zimbabwean economy has suffered a complete collapse in the social credit, the social fabric, the social faith and trust which holds all national economies together and which is the ultimate backing for any currency!

In those circumstances, it is not fiat currencies which are to blame or any government-created money. A gold-backed economy or even a barter economy would fail under such dismal conditions too!


{1} Edmund Conway, "The Bank may have to print you a pocketful of cash to spend" The Sunday Telegraph (December 14 2008) at page 27.

{2} Janet Daley, "If you want people to spend, don't take their cash away", The Daily Telegraph (December 15 2008) at page 20.

{3} Stephen Zarlenga, The Lost Science of Money: The Mythology of Money - the Story of Power [Valatie, New York: American Monetary Institute, 2002] at pages 579-580. Available to buy from Prosperity at GBP 50. Also see

Bill Totten


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