This is a revised version of my talk for the 2017 Festival of Ideas for Change, on why we need to reform the laws which govern the way money is created (and destroyed!). The website for the festival is here: http://www.brockleysociety.org.uk/festival-of-ideas-for-change-2017/
BANK ROBBERY: ROBBERY BY BANKS.
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.’ 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?
The answer to that question today is ‘No!’ Money is conjured from nothing by banks for people who want to make a profit. At the same time, an identical amount of debt is introduced into the economy. When bank and borrower have both taken their profit, the same amount of money and debt is erased.
In between creation and destruction, money behaves in a more familiar way, moving between us in payments for goods and services. Most people do not know the facts of how money is created, rented out and then destroyed, so they remain ignorant of how the system enables so few to grab so much.
Money and Debt.
The system works by creating money as fake debt. Money and debt are two distinct and simple ideas. It is only when the law conflates them that they become confusing – and a tool for outright robbery.
Money is a kind of abstract property: mine is mine, yours is yours. We all know what it’s used for: we exchange it for things that are up for sale. In the past, money has been represented by many different things: shells, salt, gold, tobacco. Today, as we know, it is represented by notes, coins, and numbers in bank accounts.
What makes these notes, coins and numbers into money? The answer is pretty obvious: the law. Try phoning up a police station and complaining that someone has stolen your Monopoly numbers, notes and coins!
Debt is also a simple affair – until unjust laws complicate things. Someone with more lends to someone with less. It’s an unequal relationship; but the inequality goes both ways, because lenders must do without what they are lending and they are vulnerable to losing what they have lent.
This balanced inequality may strengthen communal ties. Each party wants the other to prosper. The lender wants to be repaid; the borrower wants time and space to repay. Religions tend to reinforce these ties, by forbidding the charging of interest within the community.
But how is the law to treat debtors who can’t (or won’t) repay? In the past, debtors have been treated harshly – sold into slavery or imprisoned, their goods taken away and sold. Such laws change the relationship between lender and borrower, introducing a new scenario in which the lender may want the borrower to fail – so he can get possession of the borrower’s property.
Today, laws appear to be more sympathetic to debtors, although their assets can still be claimed in lieu of unpaid debts. But debt is at the core of a much greater, institutionalised injustice that pervades all our lives: Money is created as fake debt. How did this come to be?
A small dose of history.
A little bit of history about the origin of the system says a lot about what it does, and who it profits. Today’s monetary system, now globalised, was founded on laws first passed in the English Parliament between 1694 and 1704, and then adopted in various guises across the world.
As the power of commerce grew in Europe during the Middle Ages, so the ‘money power’ grew stronger, gradually displacing the old feudal order. In the harsh words of Adam Smith: ‘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.’ True to form, the ‘money power’ pushed for developments in law that would favour itself. The change in law it most desired was to make credit acceptable as a form of payment – i.e. as money.
At that time, ‘money’ was valuable gold-and-silver. If a trusted merchant made ‘promises to pay’, however, he might not have to pay out actual money for some time. His ‘promise to pay’ could pass from hand to hand, being accepted as a form of payment. Laws, however, placed tight restrictions on the extent to which ‘promises to pay’ could pass as payment. Courts would only support the right of subsequent owners to payment under special conditions.
The ‘money power’ wanted these restrictions removed. Bankers (operating among merchants and rulers) had already shown that immense profits could be made by renting out promises-to-pay – even within tight restrictions. Once a promise-to-pay is circulating indefinitely, it is money; it need never pay out anything to its customers. Bankers today rent out their promises-to-pay; they actually charge interest on what they owe! Fake debt, rented out at interest, goes by a number of names that disguise its nature: ‘promises-to-pay’, ‘IOU’s’ ‘liabilities’, ‘obligations’, ‘credit’. All these represent created debt which circulates without ever being paid out.
What persuaded the English Parliament to remove the restrictions on fake debt? At the time, the English Parliament consisted of rich men voted in by other rich men. Representatives were divided between the new ‘money power’ and the old feudal order. After much discussion, representatives of the old order – the landed gentry – were persuaded to support the new legislation, because it would facilitate war. War, of course, is another form of robbery-made-legal. For many centuries, war was considered glorious, and our banking system is a left-over from that time. It is a continuation of war by other means, and it is doing more damage in our world today than ever before. The new laws were a robber’s charter, benefitting government and private finance alike.
Not only have these laws remained on the English statute books ever since, they have been adapted and adopted by governments across the world.
How money is created today.
Money is created in a very simple way by commercial (‘high street’) banks. When a bank lends, it creates two debts out of nothing: a debt from itself to the borrower, and a debt from the borrower to itself. The borrower’s debt to the bank is real enough: interest must be paid on it, and it must eventually be paid back. The debt from the bank is a fake. Laws and regulations say it is money: it pays nothing except itself, and it is rented out at interest. In more honest days, this used to be called the ‘magic trick of banking’.
Money created in this way is not without cost to the bank. When a customer makes a payment to a customer at another bank, the bank must pay the other bank using a separate, internal currency supplied by the State called ‘reserve’. ‘Reserve’ is a kind of lubricant to the system. A bank will always create a great deal more in fake debt than it has in reserve: sometimes twenty times the amount, sometimes sixty times or more. It will, of course, charge a borrower as much as it can get away with in rental for its own debt.
When a bank pays out cash – notes and coins – to a customer who requests it, this too comes from ‘reserve’. This is why banks are vulnerable to going bust when too many customers turn up asking for ‘their’ cash, unaware that what they own is merely debt – from a bank that will never have anything like enough to pay out on its debts.
Until recently, banks have had to buy or borrow this ‘reserve’. Recently, with ‘quantitative easing’, governments have started donating reserve to banks. Such developments show how far our existing powers will go to prop up and even extend the system, which causes so much inequality and harm.
The complexity of the two-tier system is the essence of the ‘magic trick of banking’, defending it from democratic scrutiny. We are told that very few political representatives understand how banks create money – which, apparently, excuses them from considering reform.
Debt, as a commodity, is the basis of many other forms of predatory finance: the idea is to create valuable IOU’s for profit. New varieties are being continually invented. ‘Repos’ are one example whose complexity is enough to make an outsider weep. An asset is sold, with an agreement that it should subsequently be repurchased. A chain of valuable debts is created in the form of ‘repurchase obligations’. Alternatively, dodgy debt may be disguised by mixing it with good debt and selling it on: a recent example is mortgage securitization, widely blamed for the 2008 crash. Each invention sets off a fresh round of robbery, supported by law.
Damage and Distress.
Bank-money and other kinds of negotiable debt are responsible for a great deal of distress and damage in our world. Negotiable debt doesn’t usually cause the things I’m about to mention. Most of them happen anyway in our human world; but it feeds them and makes them worse.
When the world is bought up for the profit of a few, with money created especially for the purpose, wealth becomes concentrated in fewer and fewer hands. In addition, 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. Inequality is again enhanced.
Booms and busts.
Banks create new loan-money for the good times, then call in loans as growing inequality seizes up the economy. A simplified picture of economic paralysis due to inequality: Imagine a café with a hundred customers. Between them they have a thousand pounds. If the money is evenly distributed, each of them can buy lunch. If one person has all the money, only he can buy lunch. Soon, the café owner is broke, like most of his customers.
Booms-and-busts increase inequality further. People borrow in the good times; during busts, lenders take borrowers’ assets in lieu of repayment.
For economic paralysis to come to an end, money must be relocated with consumers. This can happen in a variety of ways. The worst is via arms production and war, when workers and soldiers get money that they will spend not on the products of their labour, but into the rest of the economy. It can also happen via economic expansion, or new industries; or more promisingly by means of massive reductions in debt and asset values, such as occurred in Germany after the Second World War.
Debt – personal.
When businesses are bought by remote owners with specially-created money, workers are squeezed to fund the debt. Wage-earners take on take on secondary debt to make ends meet.
In addition, the hidden cost of the money supply – interest charged on its entirety – must be paid by worker/consumers in added costs.
When debt is negotiable, lenders to governments no longer do without what they lend: they get a tradeable debt – a ‘bond’ – in return. This represents a massive creation of value for the class of those who lend. Governments commit their taxpayers to paying the interest. Inequality is further enhanced.
After Parliament passed the laws referred to above, the national debt of England exploded. By 1783, interest payments were consuming three-quarters of the national budget. The same sequence occurred across the world.
Arms and war.
Money created out of nothing for governments encourages arms races between neighbouring countries. The fact that money is created in secret reduces democratic accountability.
Going to war becomes easier. 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!’ National debts help: governments borrow, but give in return assets of equal value.
Corruption, which blights lives in so many countries, becomes a lot easier when money is created in secret out of nothing. In Russia, each kleptocrat owns his own bank, creating money for corrupt payments and consequent profit. In many countries, bankers and government officials are family relations, or involved in business together: banks create money for companies owned by powerful individuals, who then abscond on their debts having parked the money elsewhere. Taxpayers are fleeced to make good the debt.
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.’ In Malaysia, a ‘billion-dollar political scandal’ involves two brothers, a banker and the Prime Minister. In Moldova, a large proportion of the wealth of the country has been looted and relocated with financial partners, mostly in Russia.
Loss of moral freedom.
Corporations, with their open account ledgers and diverse ownership, are best able to summon up borrowed (created) money, and they are the main vehicle of financial predation. Commercial corporations must have some obligation to act to increase shareholder value; otherwise they can be looted by those who work in them. Commentators from the 13th century on have reminded us that corporations defy normal moral and legal constraints which influence the behaviour of individual humans. And as Darwin reminds us, moral sense is as important as intelligence for the survival of our human species.
Corruption of capitalism.
Capitalism supposedly depends upon savings being lent to entrepreneurs. Today, genuine savings are dwarfed by bank-created capital. This makes a mockery of the ethos and practice of capitalism.
Citizens know they are being robbed, but they do not understand the process. Instead of seeking intelligent reform, they turn to unsavoury maniacs to lead them out of the mess. Socialist, communist and fascist governments offer no better: they monopolize the system for the benefit of the Party in charge. ‘Right’ and ‘left’ may disagree about many things, but they both want power.
Destruction of the natural world.
Constant economic expansion, with moral imperatives largely disabled, is a recipe for what we witness today: destruction of the natural world, and the creation of life-threatening conditions for all of humanity.
Predation, national and international.
Banks lend newly-created money to individuals and corporations to buy up assets and to exploit labour. For the loan to be a success, profits from the enterprise must exceed the cost of the newly-created money. The moral virtue of ‘efficiency’ is invoked to justify loss of freedom and property among victims. This moral virtue covers the predator’s real motive, which is to gain possession of someone else’s assets.
Countries with powerful ‘money-bootlegging’ businesses (see note 16) plunder internationally. If the victim country is less financially ‘knowing’, sophisticated credit-creation takes advantage of an ignorance even greater than in its home country. The process is a collusion: governments provide ‘reserve’ on demand for their banks; banks create money for the profitable purchase of land, assets and labour; corporations funded by the banks do the work of robbery and exploitation. Corruption in the ruling class of the victim country also helps. In less secretive days, the process was more openly talked about.
Power in the wrong hands.
Finally, too much power goes to overly ambitious and irresponsible people who are happy to ignore the destructive effects of what they do. The whole of society suffers. In the words of banking historian William M. Gouge (1833), ‘artificial inequality of wealth adds nothing to the substantial happiness of the rich, and detracts much from the happiness of the rest of the community… its tendency is to corrupt one portion of society, and debase another.’
The crimes committed under 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 fictitious money; many lives are destroyed by wars and the degradation of our planet.
So: how do we reform? Half-measures – which basically consist of tightening the regulations – have been tried many times, but have always been side-stepped by the finance and banking industries. The latest manifestation of this is ‘shadow-banking’, in which negotiable debts (‘money-claims’) are created off-balance sheet to avoid regulation. This activity (and its profits) are confined to financial traders. Three years ago, shadow-banking was creating value worth more than $34.2 trillion – £4,500 for every person on the planet. Since then, the figures are apparently a great deal higher – but unavailable.
There is absolutely no reason why money should be created as fake debt – except to advantage those with power and money. Numbers, notes and coins can be created as property pure and simple, with no debt attached.
Before the laws mentioned above 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 that had been sold on someone else. Reform is a simple matter of turning the clock back – of getting rid of those corrupt and corrupting laws.
After reform, money would still be simple property: but it would no longer be debt from a bank; nor would its creation be accompanied by debt. There would still be borrowing and lending; there would still be inequality. There would still be shares in ownership. Ownership of money could transfer to the new system; management and supervision would continue under an independent authority, much as the justice system is independent today. It would be guided by the objective of keeping the value steady. Far less money would be created and destroyed; it would be more continuous than in our current system. 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.
When we look back at other great changes – say from feudalism to what we have today – we see a combination of an old order losing power, and a new order pushing it aside. Today, alternative currencies are on the rise, but they must compete with a system – bank-money – that is able to recycle some of its profits to those who join the system. It will be hard for a new system to achieve dominance without legal reform.
There is a hopeful precedent for how change might happen. In ancient Athens, another form of negotiable debt – debt slavery – had pushed inequality to an extreme. A man named Solon persuaded everyone to accept reform, and his reforms instituted the democracy of Athens. Athenian democracy was not perfect – slaves and women were not included – but it was more democratic than our ‘democracy’ today in one significant respect: it included poor people in the actual exercise of power.
We are surely struggling towards a better, more inclusive democracy today. Reform could well be a prelude to that. Perhaps popular demand will achieve reform; but only if enough people understand enough about the system to demand it.
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.
 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.
 For instance, Deuteronomy 23, 19-20: ‘Thou shalt not lend upon usury to thy brother … Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the Lord thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it.’ See also Deuteronomy 15, 1-3. Benjamin Nelson’s book The Idea of Usury explores the brother/stranger dichotomy in Christianity.
 Wealth of Nations Book III, Chapter IV.
 ‘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.’ M.M. Postan, Medieval Trade and Finance (1973) p. 42. See A.P. Usher, The Early History of Deposit Banking in Mediterranean Europe (1943) pp. 1-109.
 This is true of the banking system as a whole. Individual banks transfer ‘reserve money’ to settle payments between customers of different banks. Governments supply this ‘reserve’ to keep the system operational.
 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).
 ‘Caermarthen pointed out in the Lords, there might be objectionable clauses in the Bill (to establish the Bank of England) but it was the only means of providing money for the Navy to take to the sea that summer. This practical argument sufficed where all others might have failed.’ Promises-to-pay from the government, substituting for actual money, sent the Navy off to war; the siege of Namur was lifted and France was defeated. Cambridge Modern History (1908): Vol. V p. 268ff.
 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.
 ‘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.
 The two main 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. For the 1694 Act, see Richard Kleer ‘“Fictitious Cash”: English Public Finance and Paper Money, 1689-97’ in Money, Power and Print (2008). For the Promissory Notes Act, see http://encyclopedia-of-money.blogspot.co.uk/2011/10/promissory-notes-act-of-1704-england.html
 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.
 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!
 Reserve inherits the function that gold once had. The system we have today developed gradually out of existing conditions, always favouring power, not as an instant and conscious conspiracy!
 Cash is normally about 3% of money in circulation; 97% is numbers in bank accounts, representing fake debt.
 Henry C. Simons described banking as ‘a fantastic collection of enterprises for money-bootlegging, whose sanctimonious respectability and marble solidity conceal a mass of current obligations and a shoestring of equity that would be scandalous in any other type of business.’ Economics for a Free Society, p. 198. Simons wrote that in 1942; things are a lot worse today.
 The German ‘economic miracle’ was kick-started by reductions of debt and money-assets imposed by the occupation (1948 currency reform). See Alan Kramer, The West German Economy, 1945-1955 (1991).
 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!
 Adam Smith again (1776): ‘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, Bk 5 Ch 3.
 Leland Jenks, The Migration of British Capital to 1875 (1927), p. 14: ‘Three quarters of the annual budget of the government of 1783 were absorbed in dividends’.
 Giovanni d’Andrea (d. 1348), quoted by Maitland: “universitas non est capax poenae capitalis, corporalis, spiritualis . . . cum corpus animatum non habeat ad hoc aptum.” A modern version: ‘how can a corporation be expected to behave itself, when it has no body to kick, no soul to damn?’
 The Descent of Man (1871) Ch. 5. And Ch. 21: ‘A moral being is one who is capable of reflecting on his past actions and their motives – of approving of some and disapproving of others; and the fact that man is the one being who certainly deserves this designation, is the greatest of all distinctions between him and the lower animals.’
 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.
 For instance, Nassau William Senior recording a conversation in Turkey (1856): ‘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.’ Conversations and Journals in Egypt and Malta (1882) vol. II pp 194-5; quoted in Leland Jenks, The Migration of British Capital to 1875 (1927), pp. 403-4.
 Gouge, William M., A Short History of Money and Banking (1833) part I, p.139.
 For a short account, see Morgan Ricks, The Money Problem (2016) pp 230-237.
 See Richard A. Lester, Monetary Experiments (1939).
 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. In the currency reform of 1948 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.
 A good account of how money might transfer into a new system is in Joseph Huber, Sovereign Money: Beyond Reserve Banking (2016).
 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).
 For a good and detailed account see Mogens Herman Hansen, The Athenian Democracy in the Age of Demosthenes (1991).