Telling the Truth About Debt, Austerity and Taxation

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The Joy of Tax: How a Fair Tax System Can Create a Better Society

by Richard Murphy

Corgi Books (2015)

Book Review

Although the topic is economics, I personally guarantee this product to be totally painless. Murphy describes economics in ordinary comprehensible language – unlike mainstream economists who treat economics like a religion that can only be understood by high priests – and who speak and write in obscure language so you can never be sure if they’re telling the truth or not.

In The Joy of Tax, UK Tax Justice Network co-founder Richard Murphy offers a radically pioneering approach to tax and fiscal policy.  Murphy is one of the first economists to link tax policy to the 400- year-old reality that nearly all money is created by private banks out of thin air.

For political reasons, most economists try to conceal that private bank loans, i.e. debt, are the source of nearly all money in circulation. According to Murphy, the recent admission by the Bank of England (Quarterly Bulletin April 2014) about the true source of our money makes it possible to debunk a number of myths perpetuated by mainstream politicians and economists. Some examples: that investment is only possible when there are sufficient savings in the economy, that government debt is bad and that austerity, balanced budgets and government surpluses are good.

A point Murphy emphasizes repeatedly is that government also has the ability to create money out of thin air. Moreover it has regularly exercised that right to stimulate a stagnant economy. In fact, because all money is created as debt, it’s essential for government to “create” money (by spending it into the economy) whenever private banks fail to create sufficient credit. If this didn’t happen, severe economic recession results.

In Murphy’s view, the primary purpose of taxation is to reclaim the money government creates to keep it from over-inflating the economy. He claims the conservative elites who rabbit on about repaying government debt are really making the case that only private banks should have the right to create money. Aside from making them enormously rich, this makes no sense. Private banks are incapable of acting in the public interest – by law they can only act in the interest of their shareholders.

Citing Adam Smith in The Wealth of Nations, Murphy maintains a rational tax system can deliver other important goals, such as reducing inequality, recovering externalized costs (e.g.  pollution, toxic waste) imposed by corporations and promoting economically and ecologically sustainable growth.

For the current tax system to accomplish these goals, it would need to be far less regressive. At present most of the tax burden falls on middle and low income taxpayers. According to Murphy, the global economy will continue to stagnate until the wealthy shoulder their fair share of tax.

To make our current tax system fairer, Murphy proposes to introduce a number of “progressive” taxes, including a financial transaction tax, a wealth tax, a carbon/pollution tax, a land value tax to fund local government and a special tax on corporations that fail to re-invest their profits. He also proposes to do away with the current welfare bureaucracy by introducing an Unconditional Basic Income (UBI).

Although most of these tax reform proposals are specific for the UK, they would clearly produce similar benefits for the US and other post-industrial economies.

Originally published in Dissident Voice

How Banks Invent Money Out of Thin Air

Money as Debt

Directed by Paul Grignon (2006)

Film Review

Money as Debt is the classic primer for understanding where money comes from in contemporary society.

Most people erroneously believe that government issues all the money in circulation by printing bills and minting coins.

In reality, less that 5% of all the money circulating in the global economy is issued by government. More than 95% is issued by private banks as loans to businesses, families and governments.

Most people also mistakenly assume that banks lend money their customers have deposited in savings accounts. The truth is that banks lend out vastly more money than they have on deposit. In fact, every time they issue a loan, they simply create the money out of thin error as a bookkeeping entry.

There is a deliberate effort (by banks and government) to conceal these facts. Even front line bank employees don’t understand this is how money is issued.

The belief that the economy would improve if all government and private debt were repaid is also erroneous. Because nearly all the money in circulation is debt-based money issued by banks, if we paid off all the debt, there would be no money left to run the economy.

A severe shortage of debt triggered both the Great Depression of 1929 and the 2008 economic crisis. Both occurred when banks drastically reduced the supply of new bank loans.

Money as Debt also makes an important link between this debt-based monetary system and the drive for perpetual economic growth. Banks only create (out of thin air) the principal for new loans. Money to pay the interest can only be found by creating more debt through new loans. This pressure to create more and more debt requires a continual increase in production and simultaneous depletion of resources.

The film traces how our current debt based money system first started in England in 1694 and how US founding fathers fought to resist private bank control of the US monetary system until 1913. That was the year Woodrow Wilson signed the Federal Reserve Act, handing control of the US monetary system over to a consortium of private banks called the Federal Reserve.

Filmmaker Paul Grignon is particularly concerned about a system in which governments are forced to borrow from private banks to run military and public services. Because it gives banks far more control than voters over government decisions, he calls it an invisible economic dictatorship.

Check out Positive Money to examine some of the alternatives.

What They Won’t Tell Us About China’s Economy

China Rises: Getting Rich

New York Times Documentary (2013)

Film Review

“How China Backs Its Enormous Economic Success”

China Rises purports to uncover the secret of China’s phenomenal economic success. It traces the massive migration of rural peasants into scores of newly fabricated cities and industrial centers. Of the thousands of new factories springing up over the last thirty years, half are privately owned and half are state owned enterprises. Most manufacture consumer goods (clothes, electronic gadgets, shoes, textiles, heavy appliances, household goods, toys, watches) for export.

The filmmakers attribute China’s economic miracle to their newfound openness to private enterprise and their ridiculously low wages. At the time the documentary was made, the average Chinese wage was 60 cents an hour for a 12 hour day. By the end of last year, this had increased to $1.69 an hour Rising Chinese Wages

Most of the film focuses on the lavish lifestyles of China’s most famous self-made millionaires. There are also several interviews with rural peasants who have migrated to China’s designer cities to work. Most are extremely grateful for the opportunity to earn money to lift their families out of extreme poverty. Women, however, tend to be sad about being separated from their children – their earnings aren’t sufficient to bring them to the city, so they are cared for by grandparents in the rural villages.

The film also features segments about China’s emerging middle class learning to pamper themselves and China’s rampant knock-off industry, specializing in counterfeit luxury items, fake birth control pills, fake antibiotics and even fake milk powder. The latter caused 54,000 Chinese babies to be hospitalized (six died) in 2008.

Ignoring the Real Reason for China’s Stellar Growth

What I find most significant about this video is what it leaves out. In fact, it totally ignores the main impetus for China’s phenomenal growth – namely a monetary policy that doesn’t rely on borrowing money from private banks.

As of February 2014, China had only borrowed a total of $US 823 billion from foreign banks – about  9% of GDP. In contrast, the debt the US owes to private banks is 101.5% of GDP.

Unlike most western economies, 90% of the loans used to finance businesses and government services originate from China’s government-run central bank.* Bloomberg’s refers to it as “Chinese-style” quantitative easing, ie the Chinese government is creating the money out of thin air, rather than borrowing it from private banks (and paying them interest to create it out of thin air).

This differs from US-style quantitative easing in that the Chinese government spends the money they create directly into the economy instead of handing it over to private banks.

Despite Obama’s recent attacks on China for “weakening their currency,” neither the President nor the corporate effort make any effort to explain exactly how the Chinese are doing this. The explanation is actually fairly simple: pumping more yuan/renminbi into the Chinese economy causes inflation and weakens the currency’s value in relation to other global currencies.

The corporate media glosses over these details because they don’t really want Americans to understand where US dollars come from – that 97% of the dollars in circulation are created by banks out of thin air and loaned to us at interest. Or that depending on private banks to create and control our money supply is a big reason for our current economic crisis. See Stripping Banks of Their Power to Issue Money

They especially don’t want us to realize there’s an alternative – government-issued currency by a government owned central bank – nor that it’s working miracles for the Chinese economy.


*Contrary to popular belief, the US central bank, aka the Federal Reserve, is a consortium of private banks overseen by a government appointed director (Janet Yellen).

Privatization and the Theft of the Commons

Catastroika

by Aris Chatzistefanou and Katerina Kitidi

Film Review

Catastroika is a Greek documentary on neoliberalism, with a specific focus on the privatization of publicly owned resources. Although it makes no mention of historian Richard Linebaugh, its depiction of the neoliberal privatization movement provides an elegant illustration of the ongoing theft of the Commons (see Stop Thief: the Theft of the Commons).

After a brief overview of the University of Chicago economists (championed by Milton Friedman) who first put neoliberal theory into practice during the Pinochet dictatorship, the documentary tracks the wholesale privatization of Russia’s state owned industries after the 1993 coup by Boris Yeltsin, in which he illegally ordered dissolution of the Russian parliament (see The Rise of Putin and the Fall of the Oligarchs).

The fire sale of state assets to oligarchs and western bankers would virtually destroy the Russian economy, throwing millions of people into extreme poverty and reducing average life expectancy by ten years.

The Privatization of East Germany

With German reunification in 1990, East Germany would be the third major target for massive privatization. According to German economists interviewed in the film, the process amounted to an “acquisition” of East Germany by West German bankers. The West German government set up an agency called Treuhand to buy up state owned East German businesses at the rate of ten to fifteen a day – a total of 8,500 businesses in four years. The process, undertaken with virtually no oversight, predictably resulted in massive chaos and fraud. Many well-performing East Germany companies were dissolved for the simple reason they competed with West German businesses. Three million (out of 4.5 million) East German workers lost their jobs, which East Germany’s GDP shrank by 30%.

Using Debt to Compel Compliance

With the gradual demise of the world’s dictatorships during the 1990s, debt, rather than brute force, became the main mechanism to compel people to give up their publicly funded assets. At present, most of the focus is on Greece.

Current EU Commission Jean-Claude Juncker holds up Treuhand (which incurred a 250 million euro debt German taxpayers are still paying off) as a model for the Greek Asset Development Fund. The latter has been steadily selling off (at bargain basement prices) Greek railroads and municipal power and water systems.

The Dismal Track Record of Privatized Utilities

The filmmakers end the film by highlighting the disastrous outcome of Britain’s decision to privatize its railroads in 1993, the city of Paris decision to privatize its water service in the 1980s (it’s recently been re-municipalized due to massive public unrest – like privatized water systems in Bolivia, Ecuador and Argentina) and California’s experiment with electricity deregulation in the 1990s (leading to the Enron scandal).*


*The Enron scandal involved massive securities fraud and a deliberate conspiracy by power companies to withhold power to drive up electricity prices.

The Rise and Fall of Syriza

The latest news from Greece is that Prime Minister Tsipras has resigned and called a new election. This follows a rebellion by 1/3 of Syriza MPs, who voted against the IMF bailout Greek voters rejected in the 5 July referendum. According to the The Guardian, 25 Syriza MPs have broken away to form the anti-austerity party Popular Unity, led by former energy minister Panagiotis Lafazanis. Some analysts predict the new party will call for Greece to exit the euro monetary union: see Senior Syriza MP Greece Must Exit Monetary Union

The following documentary lays out some of the economic and social realities that led to the rise of Syriza.

Greece on the Brink

Manuel Reichetseder (2014)

Film Review

Greece on the Brink is a 2014 documentary about brutal living conditions in Greece that led to the rise of the left wing Syriza government. At the time the film was made, 65% of Greek youth age 15-34 were unemployed. Millions of Greeks had no income at all and were scavenging food out of garbage cans. Twenty thousand were homeless and one third had no access to privatized health care.

The film documents that only a tiny proportion of the $206.9 billion bailout Greece received between 2010-2013 went to public services:

  • 48% went to European creditors
  • 28% went to Greek banks
  • 22% went into the national budget (of this 16% went to interest payments, most of the balance went to the Greek military)

In addition to bolstering Syriza’s rise to power, the Greek economic crisis has led to numerous experiments in worker self-organization: solidarity clinics run by health professionals volunteering their services, solidarity networks that provide free food, a journalist cooperative in which journalists run their own newspaper, various worker co-ops which have occupied and taken over shuttered factories, and TV journalists and engineers who took over the state broadcasting service after the Greek government shut it down.

Most of the commentators featured in the film are militant Syriza members who predicted a year ago  (based on compromises Tsipras made to propel his party into power) that Syriza wouldn’t solve the problems faced by the Greek working class.

The most interesting section is a Marxist analysis by British economist Allen Woods about the real cause of the 2008 “credit crunch” that triggered Greece’s sudden economic collapse. According to Woods, debt is the mechanism capitalists use to avoid the crisis of overproduction. Marx believed that overproduction was an inevitable structural defect of so-called free market capitalism. By its very nature, capitalist production always overshoots the ability of the market to regulate it.

As Marx noted 150 years ago, capitalism tries to make up for this defect by expanding credit (ie debt). Woods gives the current 30% overcapacity of the global automotive industry as an example. This is illustrated by an article that appeared in Zero Hedge a year ago about new car graveyards – see Where the World’s Unsold Cars Go to Die

Woods predicts that there will be no solution to the current global economic crisis until overproduction (and the debt that supports it) are eliminated.

Savings Pools: Opting Out of the Banskters’ Money System

banksters

One way I’m opting out out of the debt-based Wall Street banking system, is by joining a local interest-free savings pool. A group of neighbors is investing their savings in a savings pool – rather than a bank – and to use the savings pool to loan money to one another. We’re using a model designed by the (New Zealand-based) Living Economies Trust. The model is based on the Swedish JAK members’ Bank, founded in 1965. The Jord Arbete Kapital (Land Labor Capital) Bank doesn’t charge or pay interest on its loans. With its loans financed solely by members’ savings, it operates outside of the Wall Street capital market.

As of November 2011, the JAK Bank had a membership of 38,000 and accumulated savings of 131 million euros. Of this 98% had been loaned out to members.

How Savings Pools Differ from JAK Bank

Savings pools maintain the JAK Bank’s tradition of interest-free transactions but differ from the Bank’s model in several respects:
• Savings pools are private arrangements between members with regular personal contact.
• Executive decisions are made by pool members themselves rather than a paid management team.
• Pool costs and charges are virtually zero.
• Each member’s savings are held in trust for that member – they don’t become joint property and can only be spent if the member agrees.

Our local savings pool meets monthly, and all savings pool decisions are consensus-based. Individual members may abstain on special loan proposal they disagree with by declaring their own balance unavailable for that specific purpose.

Tracking Savings as Dollar-Months

Savings are tracked as dollar-months rather than balances. In other words, pool statements reflect both the amount a member has contributed and the length of time they have made the funds available.

A member wishing to borrow other members’ money proposes a payment schedule and offers something of value as security to make sure the debt is covered. If the group agrees, the pool transfers to the borrower the loan amount and any balance the borrower may have saved. One month later, the borrower begins a series of installment payments, with half going to repay the loan and half going to reciprocate the pool’s contribution

When borrowers ask the pool to accept interest-free installment payments, it’s not enough to merely repay the loan. They must also make their own savings available for long enough to match the consideration other members have accorded them. This is called reciprocity.

The Advantage of Reciprocity Over Interest

Despite this reciprocity contribution, the amount repaid to a savings pool is always far less than the compound interest charged on a bank loan. With a mortgage, for example, the interest paid is usually more than the original loan. Although the borrower ends up with a house, they have nothing to show for all their interest payments.

In contrast, a savings pool borrower ends up with the purchased asset and savings, which may be withdrawn as soon as the loan agreement is complete.

Supported borrowing is also encouraged. Pool members may gift their reciprocity points to ease a borrowers reciprocity contribution

People wanting more details on the mechanics of savings pools can consult two excellent articles by The New Economics Party and Project Wairarapa

photo credit: occupy_Citibank_24_4_13_DSC_0121 via photopin (license)

Did Global Economic Growth End 15 Years Ago?

life after growth

According to London Broker, Global Economy is Shrinking

The main premise of Life After Growth: How the Global Economy Really Works – and Why 200 Years of Growth are Over  is that global economic growth has ended. Western governments conceal this fact through debt creation, inflation and clever manipulation of statistical economic indicators. According to Tim Morgan, leading analyst at the London financial brokerage Tullett Prebon, economic growth ended in 2000 and the economy has been shrinking ever since.

Morgan attributes the end of global economic growth to the high cost of fossil fuels.* This is because the real economy (which many people confuse with the financial economy) is a direct function of surplus energy. In pre-agricultural times, there was no energy surplus: human beings derived exactly the same amount of energy from their food as they expended acquiring it. With the advent of farming, they managed to produce a small surplus of energy that enabled a small minority to engage in work other than food production.

In the 18th century the invention of the heat engine enabled surplus energy (and the real economy) to grow exponentially over the next 200 years. Now that the cheap fossil fuel has been used up, our energy surplus is declining. This, in turn, is reflected in the gradual shrinkage of the global economy.

Measuring Surplus Energy

Energy surplus is measured as EROEI (Energy Returned Over Energy Invested), the ratio between the energy produced and the energy consumed in the extraction or production process. 1930s oil fields had an EROEI of 100:1. Once the easily accessible oil was used up, the EROEI began to decline. It was 30:1 in 2000 and it declines by about 2% a year. In 2014 it stood at 14:1. Unconventional oil sources have an extremely low EROEI (eg tar sands and fracked shale oil have an EROEI of 3:1).**

Declining EROEI’s are always accompanied by a spike in oil prices. This translates into higher prices for everything, due to the energy required for food production and manufacturing. Owing to higher prices, people consume less and the economy slows.

Globalization Has Been Extremely Damaging

Morgan is highly critical of politicians who fail to distinguish between the real economy of goods and services and the shadow economy of money and finance. He also feels globalization and rampant consumerism have been extremely damaging to the real economy. The mistake western countries made with globalization was reducing their production without reducing consumption. Instead they increased consumption levels by increasing borrowing and debt. Globalization was extremely beneficial for banks, due to the voracious demand for their product (loans). Meanwhile the diversion of large sums from production to the finance sector – aggravated by consumerism and the rise of consumer debt – hastened the decline of the real economy.

This wholesale debt creation and the widening split between the real economy and the financial economy is largely reflected in inflation and the destruction of the value of money. The US dollar lost 87% of its purchasing power between 1962 and 2012, which the government systematically conceals through misreporting of key economic indicators.

All economies function best when the financial economy coincides with the real economy. At present the primary methods of debt destruction are quantitative easing*** and inflation (it’s always easier to repay debts with devalued money). Other methods in the wings are cuts in pensions and Social Security payments and eventually bank failures and government defaults. Morgan feels that resource poor countries like Japan and the UK are at highest risk for default.

How Governments Lie with Statistics

My favorite chapter details the decades of statistical manipulations that have made government indicators of inflation, growth, output, debt and unemployment totally meaningless. John Kennedy was the first to exclude “discouraged” workers (who weren’t actively seeking work) from the unemployment rate. Johnson was the first to conceal the size of the government deficit by including the Social Security surplus in the federal budget. Nixon was the first to exclude energy and food costs (which rise the fastest) from core inflation calculations.

I was most shocked to learn that 16% of GDP consists of “imputations” or dollars that don’t actually exist. The largest single imputation the US government adds is “owner equivalent” rent. This is an amount equivalent to the rent all rent homeowners would have to pay if they didn’t own their own home. In 2011, this added up to $1.2 billion (out of a total GDP of $12.7 trillion).

The second largest imputation involves non-cash benefits employers give their workers (medical insurance, meals, accommodation, etc) and free banking services.

The US Government is Technically Bankrupt

This over-reporting of GDP, combined with under-reporting of inflation, makes it appear that the US economy is growing when it’s not. .

Morgan estimates that as of 2011 true US debt (government, business and personal) was 449% of GDP. Technically this means the US is insolvent as collective liabilities far exceed any realistic prediction of future income.

Politicians Need to Stop Lying

Morgan maintains that industrialized societies urgently need to living with less surplus energy. Rather than continuing to delude themselves (and us), our political leaders must face up to the reality that our claims on future energy surpluses (aka debt) are totally unrealistic.

They need to end globalization and rampant consumerism and enact policies (support for renewable energy, public transport and strong local economies) that will help people adapt to the new economic reality.


*Most analysts predict oil prices will return to $100+ a barrel in June 2015, once the US surplus is used up.
**Some other EROEI’s (for the sake of comparison):
• Coal 8:1
• Solar PVC panels 8:1
• Solar concentrating power: 17:1
• Large hydro generation: 22:1
• Small hydrogenation 32:1
• Landfill/sewage gas cogeneration 40:1
• Onshore wind 20:1
*** Quantitative easing (QE) is an unconventional form of monetary policy where a Central Bank creates new money electronically to buy financial assets, like government bonds. This differs from conventional money creation, in which private banks create money out of thin air as new loans (see An IMF Proposal to Ban Banks from Issuing Money).

Also published in Veterans Today

Debt

debt

Debt: the First 5,000 Years

by David Graeber

Book Review

The primary purpose of Debt: the First 5,000 Years is to correct the historical record concerning the origin of barter, coinage and credit. Incredibly well researched, anthropologist David Graeber’s book is a fascinating read. I found it extremely helpful in gaining some understanding of modern problems with debt and perpetual war. I was particularly intrigued to learn about the 2,600 year old link between war, debt and money creation, as well as the role of violent insurrection in shaping history. Ruling elites are terrified of insurrection. Throughout history, this fear has driven most major reforms.

Debunking Adam Smith

The conventional wisdom, which originates from Adam Smith’s Wealth of Nations, is that money (i.e. coins) originated out of barter relationships, and that paper money and credit replaced coins when trade became too large and complex to be conducted with coins. As Graeber ably demonstrates, Smith had it backwards. Not only was barter virtually non-existent in prehistoric societies, but coinage itself was an extremely late development. Virtual credit preceded coinage (and barter) by thousands of years in all early civilizations. What’s more, these complex credit-debt arrangements played a vital role in the development of traditional institutions, such as slavery, patriarchy, urbanization and organized religion.

The Myth of Barter

People didn’t barter in early hunter gatherer and agrarian societies because they didn’t need to. Well into the Middle Ages, basic needs were met by family and community mutual obligation networks. There was an expectation extended family, neighbors would provide what you couldn’t provide for yourself.

There was a vital need for credit, however, with the development of farms large enough to feed the entire community. According to archeological evidence, credit first developed around 5,000 years ago when farmers borrowed seed and farm implements from wealthy merchants and repaid the debt with a share of the harvest. When the harvest failed, they repaid it in sheep, goats and furniture. When that was gone, they sold their children and eventually themselves into slavery.

This scheme was difficult to enforce, as many indebted farmers either walked away from their land or launched violent insurgencies. In was for this reason that both Sumeria and early Chinese civilizations launched formal debt forgiveness schemes, in which people regained their lands and debt slaves were free to return to their lands.*

The first money (in the form of precious metals, shells or other tokens) was used to pay the bride price the groom paid the bride’s family, the blood debt incurred when someone was murdered and to buy someone out of slavery.

The Origin of Patriarchy

In the earliest Sumerian texts (3000-2500 BC), women appear as doctors, merchants, scribes and public officials and are free to participate in all aspects of public life. This changes over the next 1000 years, with women becoming closeted to protect the honor of their fathers and husbands. According to Graeber, this pressing need to protect a woman’s reputation arose from a reaction by agrarian peoples (such as the early Israelites) to urbanization and the prostitution that resulted from it. The rise of cities in Sumeria and Babylon was accompanied by the rise of numerous informal occupations – including prostitution – practiced by men and women who had fled slavery. Patriarchy arose simultaneously in ancient China for similar reasons.

War, Debt and Money

Coinage (gold, silver and bronze coins) arose simultaneously between 600 BC and 800 AD (aka the Axial Period) in Greece, Rome, the great plains of northern China and the Ganges Valley for precisely the same reason: it was impossible to finance war with local systems of credit.

In all three civilizations, the first coins were used to pay professional soldiers (aka mercenaries). This would lead to the first market economies, as soldiers spent their coins in local communities, as well as concepts of profit and debt interest. In fact, a vicious cycle was established whereby rulers tried to solve their debt problems through expansionist wars to acquire more land, resources and slaves. In every case, this strategy backfired and the wars only increased their indebtedness.

The appearance of coins and market economies also led to a backlash against materialism and preoccupation with money. All the world’s major philosophic tendencies (Zoroastrianism, Buddhism, prophetic Judaism, Hinduism, Confucianism, Jainism, Taoism, Christianity and Islam) arose during the Axial Period

This period also saw the rise of the first peace movements when early philosophers (eg Socrates and Plato) made common cause with rebels who opposed the violence of war and existing power relationships. According to Graeber these movements were remarkably successful in reducing the brutality and frequency of war. By 600 AD, slavery itself was virtually non-existent.

The Rise and Fall of Credit Economies

Following the fall of Rome, populations fled the cities and lived in smaller communities that reverted to credit economies. Gold and silver were used for temples and cathedrals, and only rich people had access to coins. All the major religions prohibited usury.

Money lending and banking arose to fund the Crusades, with the Knights Templar replacing Jewish moneylenders. After their persecution, torture and extermination by Phillip IV (due to the enormous debt he owed them), the latter were replaced by Venetian and Genoan bankers. The Italian bankers used municipal and government debt bonds as the chief instrument of exchange.

Around 1450, gold and silver bullion and coin (much of it from the New World) were re-introduced to finance vast empires and predatory warfare. This development was accompanied by the return of usury and debt slavery.

The Birth of Capitalism

Graeber defines capitalism as a gigantic credit/debt apparatus pumping maximum labor out of human beings to produce an ever expanding quantity of material goods. He dates its origin to around 1700 (six years after the Bank of England issued the first paper banknotes). Police, prisons and state sanctioned slavery were essential tools in achieving the phenomenal productivity needed to finance political systems based on continual war.


*”Every seventh year you shall make a cancellation. The cancellation shall be as follows: every creditor is to release the debt he has owing to him by his neighbor” (Deuteronomy 15:1-3). Every 49 years came the Jubilee, when all family land was to be returned to its original owners, and even family members who had been sold as slaves set free (Leviticus 25:9).

Economics for the Young (At Heart)

Four Horsemen (Ross Ashcroft 2012)

Film Review

 Four Horsemen is full length documentary specifically produced for YouTube and aimed at a younger audience. Its primary goal is to demystify economics, which is a total turn-off for most people because it appears so complicated and uninteresting.

In the view of the filmmakers, a corrupt system of money creation and taxation has enabled a greedy corporate oligarchy to usurp control of western democracy and institute an obscene wealth transfer from the poor to the rich. The corporate elite has cleverly concealed this enormous Ponzi scheme by inventing a kind of voodoo economics to discourage people from taking a closer look at how the economy actually operates.

How Banks Create Money Out of Thin Air

The film provides an elegant description of fractional reserve lending, in which banks create money out of thin air and lend it to us at interest. Although this has been the main form of money creation for centuries (except briefly under Lincoln), most people still mistakenly believe that government issues and controls the money supply.

So do the majority of lawmakers. Ironically the majority of economists also believe that government creates the money we use to run the economy. This is because our banks fund the universities and think tanks where economic theory is taught. In other words, it’s a deliberate deception.

The banks also don’t want us to know where government debt comes from, i.e. that all governments borrow money from banks to fund military, intelligence and public services. Or that repaying all public and private debt would cause the global economy to collapse because this is the only mechanism we have for issue money.

What’s the Solution?

The filmmakers believe that the only solution to the economic, ecological and resource crises faced by humankind is for ordinary people to rebuild a new society from the bottom up.

They have started a YouTube channel called Renegade Economist, as well as publishing a book Four Horsemen: the Survival Manual. According to the authors (Ross Ashcroft and Mark Braund), it describes a model of bottom-up reform that combines government-issued money with a land value tax that replaces income and sales tax.

The second video is a public debate they held a few months after the release of Four Horsemen. The purpose of the debate was to begin public discussion about how to go about how to go about building the new society they envision. In my view the Q&As starting at 47:00 are the most interesting part of the discussion.

Economics to Save Our Civilization

(This is the eighth in a series of posts about ending the role of private banks in issuing money)

“Somewhere in our history we took a wrong turn and today we are reaping the consequences. If we don’t step back to evaluate the root causes of the rolling economic crises, our civilization is in danger of collapse.” – Clive Menzies

A few years back, Clive Menzies, president of British Fund Building and member of the Free Critical Thinking Institute entered into an ongoing dialogue with the London Occupy movement. The result is a radical monetary reform proposal to fix the global economic mess. In the video below, he is presenting it to the Chartered Institute for Securities and Investment (translation: a high-powered group of investment bankers and stock brokers).

In his presentation, Menzies attributes the current crisis, as well as capitalism’s recurrent boom and bust cycles, to the alienation of the vast majority of the global population from the commons (i.e. communal ownership of land and natural resources that ended with the Enclosure Acts) and the prohibition of any discussion of this catastrophic event in contemporary economic discourse. (This is a topic Fred Harrison discusses at length in The Traumatised Society.)

Most of Menzies’s talk focuses on the urgent need to abolish our current debt-based (bank-controlled) monetary system. For five main reasons:

  • It drives systemic inequality by allowing those with more money than they need to exploit those who need money.
  • It drives unsustainable, exponential debt growth because the interest cost rises faster than society can create wealth to pay it.
  • It discounts the future, driving environmental destruction – it makes a forest worth more as sawed timber than as an ecosystem preserved for future generations.
  • It demands exponential GDP growth, rapidly depleting finite resources – 3% GDP growth means the economy doubles every 24 years which means extracting resources at twice the rate and throwing twice as much away.
  • It drives inflation.

He also demolishes the prevailing myth that a person’s existence on this planet is only justified by paid work. In a way it’s deliberate falsehood more than a myth. There is only enough “productive” work for 50% of the adult population and the vast majority of income in contemporary society is generated via “rent-seeking” (i.e. charging interest or rent or extracting and exploiting publicly owned natural resources).

Menzies lays out a monetary reform proposal that would abolish interest exploitation by the private banks who currently issue and control global currencies. Instead it would empower governments to issue interest-free sovereign currency.