Volume 8 Number 2 March 2000


"We people are co-heirs of a fantastic new means of production. This gives us the task to fit our way of life to this inheritance, in managing the potential abundance. But if we have no control over money, we will never control the economy. Thus a distributive money is necessary for implementing guaranteed incomes and work-sharing. The minimum income that we could obtain in the present obsolete economic framework is but a concession to buy our silence, our non-participation, in the momentous decisions of our time."

Marie-Louise Duboin,

First International Conference on Basic Income, Belgium, 1986


In this issue are two Draft Voting Papers which will be debated at the EWNI Green Party’s Spring Conference in March–not for adoption then, but in workshops which will determine whether there is enough general agreement with them, as submitted or after incorporating amendments arising, for them to have a fair chance of being adopted in the next (Autumn) Conference.

Members wishing to suggest amendments, but who will not be attending the Conferences, should send their comments to the Contacts for the papers.

A controversial point to be noted in the Taxation DVP is the proposal to delete from the MfSS* the section on Land Value Taxation.

Readers may like to study the articles by Caspar Davis in this issue, before deciding whether to support this proposal.


This issue of SustEc will be thinner than usual, as I am including in the mailing a copy of the booklet I have written in consultation with other members of the PWG, and others, to challenge the wider membership to get clued-up on the issue of monetary reform before the Voting Paper is brought to Conference.

This has crowded out a lot I would have included, but have now reserved for inclusion in the next issue–if not then crowded out with further new material.

Main Contents


Monetary Reform DVP



Top Ten Reasons to Oppose the WTO



Effective Tax-Shifting can Start at Home

C Davis


Bankrolling the World into Chaos

M Rowbotham


The Orwellian Lexicon of Neo-Classical Economics

J McMurtry (COMER)


Book Review: Debt and Delusion

P Warburton (COMER)


Credit where Credit is Due: Interest-Free Banking in Sweden

E O’Siochru (feasta)


A New Route to Social Equity: Henry George and the Science of Geonomics

C Davis


The Balanced Budget Fetish

D Gracey (COMER)


Taxation DVP



Where's the Money to Come From??

B Leslie


"HE, BEING DEAD, YET SPEAKETH ... Thanks to CCMJ colleague Desmond Cumberland for finding this wisdom from chemistry laureate and monetary heretic Prof. Frederick Soddy, who died in 1956. Interviewed at Oxford in the mid 1930s, Prof. Soddy stated:- "We have let control of the pound slip away from us. We have let private banking usurp the national prerogative of uttering money. Democracy has unwittingly handed over to the banks its political and economic destinies. Our difficulties today are entirely traceable to that. The real government today is in the hands of the banking system which issues money and destroys money, sets industry going or retards it The Labour Movement has a magnificent future if it can recover control of the pound."

Alas his words fell largely on deaf ears. CCMJ colleague Dr Edward Hamlyn was told by Labour’s Policy Directorate in 1988 "Labour accepts that private financial institutions like banks should be allowed to issue new money as credit".

–from the CCMJ January 2000 Newsletter EXTRA


1: Monetary Reform DVP

This is the text of the Draft voting Paper to be debated at a workshop at the EWNI Green Party’s Spring Conference in March. If agreed, it will then go to the Autumn Conference as a Voting Paper for adoption.

Economy Section, MfSS

EC512: After 'democratically accountable', insert, 'publicly-funded'. Delete 'empowered to create credit at interest rates sufficient only to cover administration when'. After 'local savings', insert, 'interest-free'. Delete 'and encouraging their adoption'.

Delete all EC660-663, and replace with:

Monetary Policy


EC660 Monetary Policy is defined as central government policy with respect to the quantity of money in the economy, the rate of interest (as influenced by central government via the central bank) and the exchange rate.

EC661 In a green society, monetary policies will ensure the creation and distribution of sufficient funds so as to enable the production of that quantity of commodity wealth (goods and services) commensurate with society's needs, subject to the restrictions imposed by the finite nature of the natural resources available. They will further ensure an equitable distribution to all of the commodity wealth so produced.

EC662 The failure of modern finance-capitalism to fulfil these criteria is manifest, as is evidenced by the profligate ravaging of the earth's natural resources, which, although causing an overall increase in material wealth, has allowed a small minority to become disproportionately rich whilst poverty for a larger minority has become more entrenched; and real needs throughout society remain unmet.

EC663 Fundamental to the emergence of this situation is the usurious debt-money banking system accepted by governments since the founding of the Bank of England in 1694, which has surrendered the issue and control of the nation's money supply into private hands. This system is now adopted by virtually every country in the world.


A Permanent Money Supply

EC665 Conventional economic practice rests on the assumption that all government spending must be met either by taxation, or by borrowing at a rate of interest from the private banking institutions (including the Bank of England). The fallacy of this argument is illustrated by the fact that the state has always had the right to create its own money supply, debt-free, as necessary in order to meet the needs of the national economy.

EC666 Under the current banking system, money is created predominantly as interest-bearing debt by commercial banks and the financial institutions. This system will gradually be replaced by the establishment of a permanent money supply, issued debt-free for the benefit of the community. The place of the commercial banks in financing enterprise will gradually be taken by mediating, non-profit-making Community Banks (see EC512), providing interest-free finance at local and national level.


EC670 Present high-interest-rate policy, by excessively rewarding the saver and penalising the borrower (e.g. through mortgages) is a major cause of the divide between rich and poor, as well as creating a profit motive for unscrupulous lending. The economic pressures engendered by the modern usurious debt-money system (where 97% of the current money supply (1999) was created as interest-bearing debt) have become a principal cause of unnecessary forced economic activity, with devastating consequences for people and the planet.

EC671 The current deployment of high interest rates as the principal instrument of inflation control only succeeds in this regard by causing immense damage to the economy, often resulting in a depression, and is inflationary in its effects in the short term, insofar as payment of interest rate is passed on into prices.

Usury is thus seen to be a root cause of the 'boom and bust' nature of the 'economic cycle'.


Short Term

Central Government

EC675 The banking facilities of the Central Government will be provided by a reconstituted Bank of England, as a trustee-governed, non-profit-making Central Community Bank. The Treasury's Capital Investment Account will henceforth be administered by a Currency Commission, constituting a new department of the Bank of England, which will, under the direction of the Treasury, possess sole legal right to create, or cancel, national currency.

EC676 The Currency Commission will be responsible for the regulation of the money supply on the basis of an ongoing monitoring of the national economy.

Under the executive control of the Treasury, the Commission will create, or cancel, debt-free monies in order to meet the investment needs of national government, or for adjustment of the money supply due to inflation or deflation, or expansion or contraction of the Gross Domestic Product (GDP).

EC677 The Public Sector Borrowing Requirement (PSBR) will henceforth be replaced by a Public Sector Credit Requirement (PSCR). In the event of an excess of national currency this could be a negative figure. The National Debt will, subject to consultation, be gradually paid off using created funds.

EC678 Current account government spending will be met from taxation; capital expenditure from debt-free created monies. In addition to managing the quantity of the money supply, the Currency Commission will also, in co-operation with the Treasury, issue the economy's necessary notes and coins. The Commission will also manage the sterling exchange rate on the basis of Purchasing Power Parity with other currencies and the settlement of any international trade imbalances (see also EC727).

Matching Money Supply to Need

EC680 It tends to be assumed that money reflects reality. Hence near-universal acceptance of the idea that the widely felt scarcity of funds, and the existence of the National and Domestic Debts, are due to a lack of economic competence and effort.

EC681 The falsity of this notion is demonstrated by the fact that the National and Domestic Debts taken together are now so large, that there no longer exists sufficient money in the economy to clear them. It cannot therefore be assumed that the quantity of money in the economy will maintain itself at an optimum level; it is necessary to artificially control the money supply, as a function of national government.

EC682 Central government revenue shall always be maintained (see EC675) at a level sufficient to fund government commitments, as outlined in the MfSS, subject to environmental constraints. Contrary to conventional wisdom, a Green government shall recognise that maintaining a sufficient quantity of money in the economy is more important than ensuring that this quantity is not too great. This is so as to dispel the perceived need for unnecessary and destructive economic activity. The developing situation will be monitored and adjustments made on the basis of need, and with reference to permaculture design principles (see AG445).

EC683 The system of lending and borrowing money could be used as a guide for managing the money supply. Given the natural inclination to avoid debt where possible, the general level of borrowing may become a useful indicator of the adequacy, or not, of the general level of money supply.

Medium Term

Commercial Banking

EC690 Insofar as the interest-charging Commercial Banks remain viable in the face of competition from the interest-free Community Banks (see EC512), the Commercial Banks will gradually be restricted to lending no more than the total sum of monies contained in their customers' time-deposit savings accounts, although outstanding loans will be honoured. Sufficient time will be allowed for the establishment of the new Community Banks, so as to provide a cost-free ethical alternative to the commercial banking sector as the policy comes into force.

Elimination of Usury

EC691 A legal limit on interest rates (lending and savings) will be reintroduced. Having allowed time for the establishment of the local Community Banks, the legal maximum nominal interest rate will be progressively reduced to zero. Thereafter a complete ban will be implemented on the charging of interest.

New EC727-730

Taxation on Financial Transactions

EC727 Financial speculation, by which the already rich trade financial assets in order to try to increase personal or corporate wealth still further, is not only morally unjustifiable, but because of the scale of activity, also has a seriously detrimental effect on national currency stability, and national and international economies generally.

EC728 The magnitude and frequency of these transactions means that taxation at relatively low levels generates very high yields, without penalising ordinary currency exchanges by any significant amount. This will also have the effect of discouraging speculative activity generally. Taxes in the region of 0.05 0.5% are envisaged for all financial transactions.

Tax Havens

EC730 It is believed that 60% of the world's money may be in tax havens. Those within the jurisdiction of the UK, e.g. the Isle of Man, Channel Islands and Cayman Islands, will become subject to taxation as applying to the UK mainland. The independent economy of the Channel Islands, sharing some characteristics of the reforms here described, will only be merged fully with the UK economy if the UK economy has also reformed to at least the same standard. Payments to and from other tax havens will be banned; international agreement on this will be sought.

EC930 Delete 'the IMF and World Bank' and replace with: 'the International Monetary Fund (IMF), 'World Bank', more correctly known as the 'International Bank for Reconstruction and Development' (IBRD), and the Bank for International Settlements (BIS)'.

Proposed: Donald Lowe, Brian Leslie, George Heron, Helen Trask

Contact: Donald Lowe



2: Top 10 Reasons to Oppose the World Trade Organization

From: http://www.globalexchange.org/economy/rulemakers/topTenReasons.html

1.The WTO only serves the interests of multinational corporations

The WTO is not a democratic institution, and yet its policies impact all aspects of society and the planet. The WTO rules are written by and for corporations with inside access to the negotiations. For example, the US Trade Representative relies on its 17 "Industry Sector Advisory Committees" to provide input into trade negotiations. Citizen input by consumer, environmental, human rights and labor organizations is consistently ignored. Even requests for information are denied, and the proceedings are held in secret

2.The WTO is a stacked court

The WTO’s dispute panels, which rule on whether domestic laws are "barriers to trade" and should therefore be abolished, consist of three trade bureaucrats who are not screened for conflict of interests. For example, in the tuna/dolphin case that Mexico filed against the US, which forced the US to repeal its law that barred tuna from being caught by mile-long nets that kill hundreds of thousands of dolphins each year.

One of the judges was from a corporate front group that lobbied on behalf of the Mexican government for NAFTA.

3.The WTO tramples over labor and human rights

The WTO has refused to address the impacts of free trade on labor rights, despite that fact that countries that actively enforce labor rights are disadvantaged by countries that consistently violate international labor conventions. Many developing countries, such as Mexico, contend that labor standards constitute a "barrier to free trade" for countries whose competitive advantage in the global economy is cheap labor. Potential solutions to labor and human rights abuses are blocked by the WTO, which has ruled that it is: 1) illegal for a government to ban a product based on the way it is produced (i.e. with child labor); and 2) governments cannot take into account the behavior of companies that do business with vicious dictatorships such as Burma.

4.The WTO is destroying the environment

The WTO is being used by corporations to dismantle hard-won environmental protections, who call them barriers to trade. In 1993 the very first WTO panel ruled that a regulation of the US Clean Air Act, which required both domestic and foreign producers alike to produce cleaner gasoline, was illegal. Recently, the WTO declared illegal a provision of the Endangered Species Act that requires shrimp sold in the US to be caught with an inexpensive device that allows endangered sea turtles to escape. The WTO is currently negotiating an agreement that would eliminate tariffs on wood products, which would increase the demand for timber and escalate deforestation.

5.The WTO is killing people

The WTO’s fierce defense of intellectual property rights-patents, copyrights and trademarks-comes at the expense of health and human lives. The organization’s support for pharmaceutical companies against governments seeking to protect their people’s health has had serious implications for places like sub-Saharan Africa, where 80 percent of the world’s new AIDS cases are found. The US government, on behalf of US drug companies, is trying to block developing countries’ access to less expensive, generic, life-saving drugs. For example, the South African government has been threatened with a WTO challenge over proposed national health laws that would encourage the use of generic drugs, ban the practice of manufacturers offering economic incentives to doctors who prescribe their products and institute "parallel importing," which allows companies to import drugs from other countries where the drugs are cheaper.

6.The US adoption of the WTO was undemocratic

The WTO was established out of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) negotiations. On December 1, 1994, Congress approved GATT under Fast Track during a lame duck session of Congress. Fast Track limits public debate by not allowing amendments.

The approval of the WTO required entire sections of US laws to be rewritten to conform with the WTO rules, similar to the way that treaties often redefine how the US will interact with other states. Had the agreement been voted on as a treaty, requiring a two-thirds majority in the Senate, it would have been defeated.

7.The WTO undermines local development and penalizes poor countries

The WTO’s "most favored nation" provisions requires all WTO member countries to treat each other equally and to treat all corporations from these countries equally regardless of their track record. Local policies aimed at rewarding companies who hire local residents, use domestic materials, or adopt environmentally sound practices are essentially illegal under the WTO. Under the WTO rules, developing countries are prohibited from following the same polices that developed countries pursued, such as protecting nascent, domestic industries until they can be internationally competitive.

8.The WTO is increasing inequality

Free trade is not working for the majority of the world. During a the most recent period of rapid growth in global trade and investment–1960 to 1998–inequality worsened both internationally and within countries.

The UN Development Program reports that the richest 20 percent of theworld’s population consume 86 percent of the world’s resources while the poorest 80 percent consume just 14 percent. WTO rules have hastened these trends by opening up countries to foreign investment and thereby making it easier for production to go where the labor is cheapest and most easily exploited and environmental costs are low. This pulls down wages and environmental standards in developed countries who are having to compete globally.

9.The WTO undermines national sovereignty

By creating a supranational court system that has the power to economically sanction countries to force them to comply with its rulings, the WTO has essentially replaced national governments with an unelected, unaccountable corporate-backed government. For the past nine years, the European Union has banned beef raised with artificial growth hormones. The WTO recently ruled that this public health law is a barrier to trade and should be abolished. The EU has to rollback its ban or pay stiff penalties. Under the WTO, governments can no longer act in the public interest.

10.The tide is turning against free trade and the WTO!

There is a growing international backlash against the WTO and the process of corporate globalization over which it presides.

Movement-building by coalitions such as People’s Global Action against the WTO in Europe and the Citizen’s Trade Campaign in the US are growing fast, as public support for corporate-managed free trade dwindles.

Recent polls show that 58 percent of Americans agree that foreign trade has been bad for the US economy, and 81 percent of Americans say that Congress should not accept trade agree the power to overturn US laws. (Too late!). This is why tens of thousands of people from all walks of life will converge in Seattle Nov. 29-Dec. 4 to confront the World Trade Organization head on at its ministerial meeting. Join us!



3: Effective Tax Shifting Can Start at Home

Tax shifting means removing some or all of the taxes from things that are generally regarded as desirable, like personal initiative, employment and commerce, and replacing them with taxes on things that do palpable harm, such as pollution, CO2 production, etc. The total tax burden remains unchanged, but taxes becomes an agent of positive change.

Tax shifting is being widely discussed by senior governments, but few people are aware that one of the most effective tax shifts of all lies within municipal jurisdiction. [in the USA; - Ed.]

This one simple shift has the power to:

* Stop penalizing people for improving or renovating their homes

* Lower rents for residential tenants

* Prevent or eliminate run-down and neglected buildings

* Practically eliminate useless vacant lots

* Create a construction and renovation boom in the city core

* Encourage economic and social activity in the city core.

When more people live, work, and shop in the city core, it

- reduces the pressure for sprawl into outlying green space and farmland,

- greatly reduces infrastructure costs, because most new construction can be serviced by existing sewers, hydro lines, transit routes, and roads, rather than forcing the building of these services through what used to be woods, meadows and fields,

- makes public transit more useful, convenient, and efficient,

- makes it possible for many people to walk or bike to work and to the shops and restaurants they visit most frequently,

- greatly reduces automobile use and the corollary pollution and greenhouse gases,

- makes it possible to develop vibrant mixed-use neighbourhoods, where people begin to get to know each other and which are pleasant and safe to live in because of the many people walking, meeting, greeting, and talking on the streets and sidewalks.

What is the shift that produces these remarkable effects?

In our province and in most of North America property tax is now applied equally to buildings and to the land on which they sit. To create most or all of the benefits set out above, all we need to do is gradually shift some or all of the tax now levied on buildings onto the value of the land.

This shift would not change the amount of tax paid by most homeowners. It would tend to reduce the taxes on condominiums and multi-family dwellings, but it would raise the tax on, and remove much of the incentive for holding onto run down buildings or vacant lots in the expectation that land values will rise. Typically, a high percentage of these properties are held by absentee landowners who have no stake in the community except for their financial interest in rising land prices.

The results described above are not mere theory or pie in the sky. Wherever taxes have been shifted from improvements to the land, the results have been much as described above. This strategy has been applied in many places around the world, most recently in Pennsylvania where many rusting steel mill towns and other cities marred by decay and serious environmental and social problems have converted themselves from basket cases into urban showplaces. Cities that have successfully made the switch include Pittsburgh and the capitol, Harrisburg, as well as some 15 other towns. Not only was the physical structure upgraded, but new parks were created and urban services generally enhanced.

This shift has produced great benefits wherever it has been applied, and it can do the same thing here.

The Philosophical Roots of Tax Shifting

Although tax shifting is only now entering the mainstream political dialogue, the ides is far from new. In the 18th century, Thomas Paine and the French Physiocrats were articulate advocates of the Land value tax, but perhaps its strongest advocate was Henry George (1839-98) whose worldwide best-seller Progress and Poverty was a compelling argument for taxing the value of the land.

George's definition of "Land" encompassed not only plots of the earth's surface, but all those things which are provided by nature rather than by the labor of humankind. It includes mineral resources, naturally growing trees, animals and fish, and by necessary extension airlanes, satellite orbits, the electromagnetic, and the capacity of air, land and water to absorb and eclaim waste and pollution. These things were created by no man. They have been provided freely by nature for the use of all, and it is therefore just that anyone who claims exclusive use of any part of them should pay a fair fee or rent to the rest of society for their use. It is also just that society require that they be used responsibly so that their quality is not destroyed.

Practical Application of the Land Value Tax

A full or partial land value tax has been applied, among other places, in Australia, in South Africa, and in parts of the US, most notably in Pennsylvania. Wherever tax has been shifted from buildings to land, there has a construction boom, often while nearby jurisdictions slumped. Some of the Pennsylvania examples were steel mill towns facing mill closures. The consistency of the results in different countries and different time periods speaks for itself.

The table below summarizes some of the data:

All comparisons based on three years before and after the land tax shift.

Permit data compares 1975 and 1979, and refers only to residential permits since the tax on commercial property was not changed. There was a severe recession in 1976. Sydney and Newcastle were hit hard that year, however Melbourne's building permits actually went up by almost 33% in 1976, but fell off sharply each of the 3 years thereafter, while Sydney and Newcastle were recovering strongly.

All data from The Evidence for Land Value Taxation, by Steven B. Cord, no date, Center for the Study of Economics, 2000 Century Plaza (238), Columbia, MD 21044

–by Caspar Davis


Change in Tax Ratio


% Change in Land/Buildings

Building Permits

Number Value



McKeesport (steel mill)

1/1 to 4.5/1




Clairton (near McKeesport)





Duquesne (near McKeesport)





New Castle

1/1 to 3.2/1




Farrell (near New Castle)





Sharon (near New Castle)






4/1/ to 5.6/1





2/1 to 3.75/1




Wilkes-Barre (near Scranton)





New South Wales



1/1 to LVT





1/1 to 3.2/1





1/1 to 3.2/1






4: Bankrolling the World into Chaos

by Michael Rowbotham

It is time to ask searching questions about the near total reliance of modern economies upon banking. Getting the right answers can sometimes be difficult. But not asking the right questions in the first place can be a disaster. The industrialised economies are trying desperately to break the cycle of boom and bust and the Asian Tigers are counting what is left after the crash. But no-one is pointing out that modern economies are rendered inherently unstable by a financial system based almost entirely upon lending.

The exposure of industrialised nations to the banking system is no less great than that of the poorer nations, and the risk of collapse just as possible. The debts registered against the wealthy nations and their citizens speak for themselves. In the UK outstanding mortgage debts total £420 billion, commercial debts £380 billion and the National Debt stands at £400 billion. In the USA, mortgages currently in excess of $4.2 trillion and a national debt of $5 trillion make one wonder why the wealthier a nation becomes, the more its financial accounts deteriorate.

The answer to this conundrum is easy. Under the current financial system, debt is used to create money. Bank of England statistics show that a staggering 97% of the entire UK money stock consists of bank money created by the action of lending to borrowers. Government created currency – the notes and coins (MO) – at 3% of the money stock, is now so trivial that the entire economy functions on money created by bank lending. Globally, over 90% of all money is created by the banking system.

The ability of lending institutions to create a vast circulating money stock of bank credit is well understood by economists. In most peoples’ minds, money is still the stuff you jingle in your pocket. However, most money today consists simply of numbers –relayed between bank accounts via computer systems, and created out of thin air every time a loan is made.

The problem with a bank-based money supply is this: When a bank makes a loan, a debt is created as well as a credit. So with the £680 billion of bank credit now lubricating the UK economy goes £680 billion of debt in the form of mortgages, overdrafts, commercial loans and other debts.

A clear political as well as an economic question arises: is it proper to rely so heavily upon debt to create the nation’s medium of exchange?

Of course, the citizens of Malaysia, South Korea and Indonesia have not just been having difficulties with the monthly mortgage. Their entire future has been rewritten. After decades of struggle to raise per capita income above the poverty level to a half-decent standard of living, the financial carpet has been suddenly and cruelly pulled from under their feet. Forced to accept massive dollar loans from the IMF and commercial banks, with their currency degraded and now the plaything of international dealers, their commercial assets are now being picked up for a song by foreign investors. The Koreans are already talking about a ‘lost generation’.

The Asian crisis reminds the world of the capacity of a bank-based money supply to lead to complete economic collapse. The industrialised nations have not experienced this for many decades. But, we too are suffering from the debt-based financial system. The massive mortgages carried by Western citizens, and the earnings pressure and wage dependency these create, is a form of constant oppression. Should we allow our lives to be so dominated by debt and banking policy, and the stock market manipulation of international capital flows?


Monetary reform has an ancient pedigree, as applicable to the advanced industrial nations as to the Third World. Bishop Berkeley asked in the early 1 8th century "whether or not it be a mighty privilege for a man to create a hundred pounds with the stroke of a pen?" Abraham Lincoln claimed that the government had not only a right, but a duty to create a nation’s currency.

In the 1930s, during the Depression days of poverty amidst plenty, the financial system brought the economies of the world to a virtual standstill. Then, the public took to the streets in support of monetary reformers such as Douglas, Orage, Soddy and Kitson. The monetary reformers were ignored and Keynsian deficit financing was adopted i.e. the world chose debt.

Why shouldn’t a socially aware and economically responsible government create credit where it is appropriate?

In the 1980s, the Economic Research Council, under Sir Arthur Bryant, advocated that the UK government should take on the responsibility for the issuance of money, thereby obviating the need for a national debt and reducing the burden of money creation placed upon commerce and the general population. Bryan Gould, shortly before he left for New Zealand, displayed his monetary reform credentials when he declared, in the New Statesman (19-2-93): "Why shouldn’t a socially aware and economically responsible government create credit where it is appropriate ... in order to ensure investment is made and at the same time strike a great blow for the democratic control of the economy?"

Government created credit, like the coins and notes they issue, would be created as a debt-free input into the economy, spent into circulation via public services, and contribute to a stable, circulating money stock. The monetary reformers have history on their side. In the 1950s and 1960s, the money stock consisted of about 75% bank created money and 25% cash currency, created debt-free. Inflation was lower, growth more stable and debts markedly smaller in comparison to average incomes, and related to GDP. Why should the declining use of cash mean that the difference is made up by bank created money and the debt it entails? Just because the economy needs less cash doesn’t mean it needs more debt.

This question was raised by Lord Sudeley in the House of Lords in May 1998. He asked whether the government intended to take any measure to compensate for the loss of debt and interest free money caused by the declining use of cash. The official reply, contained in a statement of masterly evasion and opacity, was ‘No’.

The government issuance of money has always been dismissed as inflationary. But this need not be the case. If sensible restrictions were placed on banks and building societies, the government-issued money supply would be compensated for by curtailing the production of new bank lending. For instance, there could be a limit, and gradual reduction, in the number of times a person is allowed to multiply their annual income as the basis of a mortgage. Since house mortgages support over 600/0 of the money stock, this could make a dramatic contribution to preventing monetary inflation as well as putting a break on the relentless rise in house prices, which benefits no-one. It would also mean that, over the years, house buying would became a competition based on money people have got, rather than at present, money they haven’t got. An entirely new economic agenda is possible, and radically different fiscal conditions would prevail in an economy based on solvency rather than debt.

Although this offers a range of government and commercial policy options that amount almost to an economic revolution, it is a reform that can be undertaken gradually, building up the liquidity in an economy and monitoring the effects over a number of years, effectively reversing the recent drift towards ever greater debt.

All national economies are now so financially vulnerable that they are constantly taken to the cleaners by powerful multinationals and heavily exposed to the callous and destructive actions of predatory speculation. More liquidity and solvency would afford protection to the real, productive economy, rather than making the source of true wealth subject to the vagaries of finance.

In the end, this has to be part of the answer. And as Bryan Gould points out, the questions addressed are fundamental political issues, not just a matter of economics. Why should a nation’s people and its commerce drift ever deeper into debt simply to create their medium of exchange? Why should a government – the one institution with the constitutional authority to create money –delegate this responsibility and power entirely to banks, and thereby oblige the nation to run on debt? These are the questions we should ask as we watch the crisis in Asia deepen and spread, perhaps along with a query as to the sanity of the bulk of our economists, who see no connection between the spiralling debt problems of the world and the way money is currently created.

Further reading: The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics by Michael Rowbotham, (Charlbury, Oxon: Jon Carpenter Publishing, 1998). Includes endorsements from Bryan Gould, Professor Herman Daly, David Korten, and the Rt. Rev. Peter Selby.



5: The Orwellian Lexicon of Neo-Classical Economics

As the advertising and public relations industry knows well, upbeat slogans ceaselessly repeated can make unthinking people believe anything. We may recall that the Reagan presidency turned war criminals into "freedom fighters," and no mass media ever exposed this equation of opposites. Although the "freedom fighters" burned rural schools and clinics as their modus operandi and were financed by drug runs arranged by the president’s men who bothered to track or remember the evidence? We know about the boast that public lies work best if they are big lies. But there is little connection to the mediasaturating falsehoods today declared as final truths.

"Tax cuts" mean "more tax revenues." Massive layoffs and stripped social services mean "more prosperity." "National competitiveness" means dismantling the nation. "Development" means desertification. The "knowledge economy" means that no criterion exists to tell truth from falsehood.

Propelling the endless train of falsehoods are three master slogans of the system upon which all else depends for final justification. Let us reflect on their meaning.

The Free Market is the received description for the global financial and corporate system. But note the first word of the slogan, "the free market." The deep implication is that no other market exists, or has a right to exist the traditional market, the barter market, the socialist market, or any other kind of market. We see here a totalitarian assumption disguised as an ultimate category of freedom.

But the curtain of repressed meaning that neo-classical economic doctrine draws over reality is many-layered. Even in its scientific guise, the normative pro-slogan free is snuck into the descriptor of the market as if it was a positive scientific fact. And no-one observes that the doctrine asserts at the same time that it is "Value Neutral" as its very title to scientific objectivity although its self-description is a value slogan. The deeper you go into analysis of the doctrine’s claimed meanings, the more false equivalences emerge.

A science recognises facts. But what element of neo-classical economic science observes that the traditional free market which has thrived over millennia across the world is, in fact, opposite in its nature to the global corporate system calling itself "the free market"? Where in the vast industry of economic textbooks is it recognised in even one line that the free market of the farmers and artisans we are still free to transact with in true markets is regulated by opposed principles?

For the goods of the real free market are: (i) sold by their direct producers; (u) serve vital needs; (iii) come free of wasteful packaging and false propaganda; (iv) are viewable in a public space; and (v) rule out usury from their prices.

Why then does neo-classical economic science use one describing term for what are opposite forms of life? The answer is that this economic doctrine is the systematic propaganda of a dominant sect of the market, the money-investing class, and not a science.

Free Trade: The difference between "trade" and "free trade" is that free trade is by voluntary exchange between economic agents across national borders.

But what is not coerced exchange across these borders in the global corporate system today? Trade among first-world corporations and their subsidiaries is free, but excluding these market agents, where are the exchanges in the global system not coerced? For almost all of the economic agents who are involved in transborder trade of their goods those who exchange their labour with foreign transnational firms for wages-–are not free in these exchanges. For to choose is to be able to do othenvise. If there is no alternative, there is no choice. It is "an offer that cannot be refused."

But which of the countless millions of people from Mexico to China who exchange their labour for starvation wages is free not to exchange? Who is free to set any condition of this exchange? Global "free trade" is, in truth, not free for most agents in it.

And then what of the majority of countries who have been compelled by IMF demands to pay compound interest charges on debts their peoples never agreed to, by further money loans on condition of restructuring their domestic economies for transnational export rather than production for their own life needs-~ what in this forced conversion to "global free trade" is not in fact extortionate?

Consumer Sovereignty: No general premise is more unquestioned in neo-classical theory and the global market system than that consumers choose to buy or not buy the products they prefer. The value grid of consumer choice is formed by the marginal utility they are said to receive by the price they are willing to pay for the next unit of the product, with perfect information of the competitive choices available assumed by this calculus.

But, in fact, the actual global corporate market rules against not only consumer sovereignty, but consumer choice itself. The neo-classical principle of non-satiety (no limit to consumer wants) rules against consumer sovereignty on a primary level by not recognising a principal choice in today’s world–to not consume more than is needed in order to preserve the planet and leave more for others who need more. But there is no concept of need in neo-classical theory–although economics itself is based on the premise of scarcity which need determines the meaning of. Neo-classical doctrine manages this problem by cloaking its theory in mathematical notations to conceal its groundlessness in anything but transformations of money-demand.

Life itself, in fact, has no place in the co-ordinates of the neo-classical paradigm. This is the doctrine’s most lethal property, and why it can effect the destruction of civil and environmental life-organisation across the planet with no recognition registering to it even though society’s system of long-term reproduction is what economics is supposed to be a science of.

What can be left of human "sovereignty" in such a mind-set? Even the primary purpose of economics is blinkered out. That is why empty algebraic formalism is so essential to maintaining the scientific pretence of the neo-classical program.

Consumer sovereignty, one may still think, must exist somewhere. But rational preferences in this system are selfmaximising by definition – to lower costs and to increase money-demand satisfactions. Where is the sovereign choice here? This system is said to be "inevitable" with no temporal or cultural limit, and with "no alternative"–a straightforward denial of sovereignty. A society cannot be sovereign unless it can choose its own way.

But the sovereignty here, you may answer, is the individual choice of which product to choose. But is there even this sovereignty? Within neo-classical theory’s regulating constraint of rationality as money-demand maximisation, you must behave in this prescribed way. Or you will "not survive." That is why, for example, the World Bank in its 1998 edict, "Higher Education: Worldwide Reforms" demands that all student and faculty members in the universities of the world be restructured to "learn to respond to monetary incentives" – that is, not to live in accordance with the pursuit of knowledge or truth.

But perhaps sovereign choice still remains of what to buy off the shelf– even if demand is created and products supplied by a global oligopoly of firms. But is consumer choice sovereign even here? For shoppers are not permitted to choose what they buy. What is genetically modified or not, what bears criminally exploited labour or not, what is pollutive in its manufacture and distribution or not, what destroys species

and fellow mammals or not, what is carcinogenic in contents or not, what pays profits to genocidal regimes or not – all of these choices are ruled against by the corporate trade system. This is because all of the required information on the basis of which these choices can be made is prohibited under trade law as "discrimination against the process of production."

"Consumer sovereignty" no more exists than "free trade." The neo-classical paradigm is modelled on 19th century engineering physics. In such a system, we have been slow to recognise. life choice is excluded a priori.

John McMurtry

Professor of Philosophy

University of Guelph

–from COMER, February 2000



6: Book Review:Debt and Delusion by Peter Warburton

London: Penguin Press, 1999

The title is apt. This book is about the pyramid of debt we have built up over the past twenty years and the ‘debt deflation’ depression that must ensue, despite the current delusions about unending prosperity and wealth accumulation.

The primary villain in this sorry tale is our central banks and their ‘loss of control of bank credit systems’ in the 1980s. They were motivated by the need to "restore banks’ profitability" and "rebuild their capital reserves." Deregulation of financial markets facilitated a reckless expansion of credit, much of it outside the traditional monetary system. This trend in turn has diminished the link between "credit expansion and price inflation." Thus we have low inflation in the real economy combined with high inflation in the financial economy, and high real interest rates. The traditional means of debt reduction by means of inflation and low real interest rates have been removed by the zero inflation dogma. This combination of the anti-inflation ‘obsession’ with deregulation is paving the way for a crisis of immense proportions!

Warburton sees the bond market as the primary engine of debt. The global bond market has swelled from $2 trillion US in 1980 to $25 trillion in 1998. The quality of credit has declined precipitously as financial institutions securitise personal debt like mortgages to raise cash which is used in speculation via derivatives. Bond traders in search of capital gains have removed much of the yield differential between low and high risk bonds. Warburton sees this convergence’ trend as a powerful indicator of danger ahead, since a default of the high risk debt must necessarily impact the whole market. The reality is that "the stock of bonds is not matched by physical assets." In fact the claims of bondholders in the private sector exceed the replacement cost of capital stock by 50%!

Why all the borrowing? There was a time when borrowing translated, via the multipliers, into an ever greater increase in spending and output. Thus the increased debt was validated. This is no longer the case. In 1997 the US economy generated only $439 billion in increased expenditure from $759 of additional debt, a ‘return’ of only 58 cents on the dollar! The rest went into asset inflation which generated no revenue to service that debt–a recipe for disaster. "The ratio of private debt to GDP has risen inexorably for 30 years" and shows no sign of leveling off. "The USA has become an unstoppable debt machine." This is the reality that belies all the optimistic hype about the current prosperity.

Warburton points to the last decade in Japan as a model of what we can expect when debt deflation strikes. After a huge buildup of debt and asset inflation for several decades, the cycle broke in 1989. The Japanese government has been forced to borrow trillions on the world bond market to rescue banks and restore liquidity to the financial system. Japan now has the highest public sector debt to GDP ratio (150%) in the OECD. A meltdown in North America could be much worse. Japanese households are 60% more liquid (cash, money market accounts and bank deposits) than households in Canada and the US. A market slump here would have a vastly greater impact.

Warburton predicts that the crisis will begin in the US bond market. Held aloft by massive foreign investment, it is vulnerable on many fronts. The financial sector is exposed, because of the securitisation of mortgages and other loans, to an increase in defaults. So far the Federal Reserve has been able to ‘manage’ crises like the collapse of Long Term Capital Management, but. may only have served to postpone the inevitable collapse. In the last chapter, there are proposals for reform of the financial sector which include reigning in the derivatives market. But it is probably too late for that, and household and businesses will have to protect themselves by reducing debt and getting as liquid as possible. Sadly very few remember the ravages of the last debt deflation The Great Depression. "One day the mist will clear and the delusion of effortless wealth creation will be shattered. Until that day, we are living on borrowed time.

David Gracey

–from COMER, January 2000



7: Credit where Credit is Due: Interest-Free Banking in Sweden

At present, the cost of borrowing and the benefits of saving are very imbalanced in terms of interest. Money on deposit in conventional banks earns no interest for the depositor whereas an overdraft always comes with high inter-est costs and penalties. And over a life-time of saving and borrowing, compar-ing the interest gained against that paid, the bank or building society is invariably the winner. This need not be so.

The JAK banks in Denmark and Sweden give credit where credit is due, awarding ‘savings points’ to depositors in both current and savings accounts which earn the customer the right to borrow the equivalent amount at no interest. These ‘savings points’ can also be passed on to friends or relations who have greater need of a cheap loan. For those who need to borrow sums larger than their pre-savings points allow, the JAK bank has developed a post-saving contract to enable them to do so.

Customers are advised and supported through a network of local volunteers but the contracts for saving and loans are negotiated by phone directly to JAK headquarters. The JAK Bank has been operating since 1965 in Sweden with a big expansion of customers during the interest crisis of the early 1990s. Over that time it has developed and tested interest-free accounting techniques successfully growing to 22,000 customers and loans of 440 million Kroner in 1999. The JAK Bank works closely with the Swedish post office network using the GIRO system to facilitate cash transactions. It differs from the Credit Union movement in Ireland by virtue of its emphasis on low interest; consistently favouring borrowers over savers, its single central organization in contrast to the network of small Irish credit unions and finally, its low-asset, virtual operation in contrast to the grow-ing property assets of many credit unions.

Feasta plans to invite JAK Sweden to Ireland this year to investigate how to bring the manifest benefits of interest-free banking to Irish customers and give the mainstream banks a run for their money.

by Emer OSiochru

[email protected]

–from feasta Newsletter No.2, Spring 2000



8: A New Route to Social Equity: Henry George and the Science of Geonomics

Henry George

Henry George (1839-1897), was the last of the great Classical economists. His first book, Progress and Poverty (1879), was the best-selling book to that date, save only the Bible. George wrote several other popular but substantial books, and also had an international reputation as a lecturer, speaking throughout the English-speaking world, from Australia to England. He greatly influenced philosophers and politicians from Leo Tolstoy and G. B. Shaw to Clarence Darrow, Sun Yat Sen and Winston Churchill, among many others.

Like Tom Paine, George drew a sharp distinction between land and capital. Capital, he said, was a subset of wealth, i.e. that part of wealth which is devoted to economic activity; to production, transportation, sales, or services provided for profit. Like labour, capital represents human effort and deserves fair recompense. Land, however, is another matter. It is produced by no person, and whoever uses it prevents others from doing so. Moreover, most of the economic value of land is created by society as a whole, not by the "owner". Population growth creates demand for land and for resources, and population, together with public roads, pipe-lines, and utilities cause the value of land to rise even if the owner does nothing with it. Since the economic value of raw land and its natural resources results entirely from social action, that value should be shared by all and not accrue to any single "owner". George said that this result could easily be accom-plished by taxing away all or most of the "economic rent" -- i.e. the rent that raw land or its resources would bring on the open market.

George added that society should collect the rent not only from land and natural resources, but also that accruing from special privileges such as patents and licenses like taxi licenses, radio and TV licenses, satellite orbits etc. which enable a few to profit from monopolies Everything beyond a fair return to the inventor or license holder should accrue to society as a whole.

Neo-Classical Economics and the Appropriation of the Commons

George's ideas were ridiculed by the new breed of academic "Neo-Classical" econo-mists, who asserted that land and natural resources were merely subsets of capital, not qualitatively different from tools and factories. This doctrine represents a radical departure from Classical economics, and lies at the heart of "modern" or Neo-Classical economic theory. The private sequestration of land and other natural resources has become a fundamental dogma of the Neo-Classical faith.

Of course land holding is nothing new, nor was it in George's day; but even now real estate is treated quite differently from other property. It has its own terminology and is governed by a discrete body of law. Even in England, the term "landowner" did not come into use until the 1600's. The prior term was "landholder. Unlike manufactured goods which are made by people and sold to others, so that their provenance can be traced to the maker, land tenure is rooted either in long habitation or more usually in violent theft -- called conquest. The principal thief ('king' or 'conqueror') granted pieces of land to his followers who held 'title' to it from the thief-in-chief, the king. Unlike Labour, which is actual individual effort, or Capital, the title to which is rooted in the labour which gave it its form, title to Land is rooted in the private appropriation of a common resource, usually by force. Title to Land is almost invariably founded on the most recent theft to be legitimized by the local legal system.

It is not practical in modern society for most resources to be held in common. In practice, this usually leads to bureaucratic management which often benefits no one very much. True commons tend to suffer 'The Tragedy of the Commons.' Overuse or abuse benefits the abuser much more than it harms any individual user, so there is much more incentive to abuse than to prevent abuse, until it is too late. For example, if I put one more sheep on the common than it will adequately maintain, each person's sheep will only be slightly less well nourished but I will have an extra sheep. This encourages others to also run more sheep, and soon the grass is gone.

Beginning with the Norman Conquest, much of England's land was enclosed by those who rendered service to the king. Later on, those with the wealth and political power began to pass legislation legalizing their appropriation of the remaining commons. Nor did appropriation stop with the land. One after another, farmland, timber, hydrocarbons, minerals, fish, pollution and carbon sinks (such as ait and water), plant and animal species and now even DNA sequences have been sequestered for private profit. Today, corporate scouts roam the planet looking for genetic material which might have commercial value, in order to patent it.

The privatization of public resources has been justified and applauded by the Neo-Classical economic priesthood, who claim that it creates a rising tide of prosperity that elevates all boats. This claim is repeated constantly, not only by economists and the business elite, but also by journalists and politicians. But no matter how large the crowds that admire the emperor's fictional clothes, it does not change the fact that he is naked.

According to the Centre For Social Justice's Growing Gap Report by Armine Yalnizyan, a Toronto Economist:, "The role of the transfer system (income supports from government) and tax system... provided remarkable stability in the distribution of incomes over the last generation. This stability is [now] deteriorating dramatically and rapidly: since 1994, the ratio of after-tax income between richest and poorest families has escalated to the highest point since 1973. The fastest change has been in the last year for which we have data, between 1995 and 1996... Governments have told us we can "grow our way to equity," that the market will produce results that make everyone better off, but it's becoming evident that inequality is growing in Canada despite economic growth."

The inequity of ownership resulting from private sequestration of land is palpable in the statistics of land ownership, as is shown in Figure 1.

Nevertheless, there are real benefits to having a personal or family interest in land. How then can we reap the benefits of private use and enjoyment while maintaining the equity and sense of respect inherent in common ownership?

The Geonomic Solution

Henry George suggested that society should collect rent for the Land (as broadly defined) from those who command exclusive use of this common heritage. He recommended that the rent be used to replace existing taxes, which in those days were mainly tariffs and excise taxes, both of which tended to inhibit economic activity. Today, the principal taxes are income tax, payroll taxes and sales taxes, all of which impinge negatively on employ-ment and economic activity, and which also tend to impact most heavily on people with lower incomes. They are also very hard to administer, requiring an army of accountants and tax collectors, and relatively easy to avoid or evade, creating a large "underground economy."

A Georgist or Geonomic tax code, based on the taxation of land and natural resources, but not of improvements to the land, has the following effects, among others:

1. It reconciles common land and resource rights with private tenure, enabling society to collect the value accruing from its actions yet preserving the benefits of private ownership.

2. It enables the reduction or elimination of payroll taxes and taxes on labour and capital, by shifting the burden to land and natural resources.

3. It reconciles equity and efficiency, which Neo-Classical economists and institutions like the IMF and the WTO claim must be traded off against one another. Land is im-mobile and it cannot be hidden. Surprisingly, the value of residential lots tends to vary more than the value of the buildings on them. Open assessment records would ensure fairness. Resource taxes would help to assign their true value to dwindling natural resources which are often sold for far less than their replacement would cost, and in many cases (due to subsidies) for less even than the true cost of recovering them. Even radical Neo-Conservatives Milton Friedman, who is opposed to all taxes, has acknowledged that the land tax is the least harmful tax.

4. It can finance generous public services without driving away business or population and without stifling useful employment or taxing investors in real capital. Neither land nor resources are mobile. Those who would live or do business in a jurisdiction must use land to do so. At present, those who use land, whether to extract resources or build houses or business facilities are often heavily subsidized. A land tax which recovered most of the economic rent would recover for the community the value created by the community.

5. It contains urban sprawl by encouraging the intensive development of urban land and by making the developers and owners of suburban land pay more of the true costs of providing them with roads and utilities, which are now heavily subsidized by the rest of the community. It is much less costly to provide public utilities to developments in or near the urban core than in outlying districts.

Most North American cities have very low density. Since World War II the tendency has been to abandon urban cores for car-dependent suburbs, whose wide streets and large lots serve little purpose other than to keep neighbours apart. The preference for them is based more on habit than reason. Higher densities can actually make neighbourhoods more vibrant. Narrow streets and front porches encourage social contact and promote safety. Greater density makes neighbourhood coffee shops, stores and mini parks economically and socially viable. Lack of sprawl preserves the surrounding countryside for agriculture, green space, and parks.

6. It creates jobs without inflation or deficits. It is the only tax of any serious revenue potential that does not bear down on and suppress production and exchange. Unlike income and payroll taxes, it does not penalize work and employment. Unlike sales tax and GST it does not penalize production and trade.

Geonomics meshes very comfortably with other tax shifting measures being advocated by many progressive economists and environmentalists. The general idea of green and equitable tax shifting is to stop taxing "goods" like employment, initiative, and economic activity and start taxing "bads" like carbon emissions and other pollutants, traffic congestion, speculative holding of vacant urban lots, and reckless use of common goods like fish, old growth forests, and water.

Jeffery Smith, the Portland based founder of Geonomics suggests that land taxes could not only fund necessary public services but also provide a "Geo-dividend", a basic income for everyone, as the Alaskan state oil royalty does for Alaskans.

The stated purpose of economic progress has always been to provide more goods with less effort, to provide greater leisure for people to pursue the arts and personal development. Today we have incalculably more total wealth and more efficient production than ever before, but we also have less balance. A few are immensely wealthy. But most working people work harder than ever just to stay afloat. Forty years ago, most families had only one member working outside the home. Today it usually takes two or more people working just to provide the basic necessities. And millions are unable to find even minimum wage work, and almost every day we hear of more mass layoffs and more deep wage cuts.

As Henry George said long ago, whoever is able to deny people access to the land is able to wring from them all but the barest means of subsistence. He can force them to work like slaves for less than the cost of maintaining slaves. Actual access to land is no longer practical for many people, but Geonomic taxes could recover the value of the land and other common resources for the good of all.


Concentration of ownership


2% of landowners control


of the arable land (as of 1985)

El Salvador

2% of the population owns


of the land

Great Britain

2% of the population owns


of the land


3% of the population owns


of the land


3% of the population owns


of privately held land (as of 1979)


1% of the population owns


of the land

In Arizona, California, Maine, Nevada, New Mexico and Oregon, one percent of the population owns over two-thirds of the land.

Figure 1- Concentration of land ownership in selected jurisdictions

Data compiled by Alanna Hartzog

–by Caspar Davis



9: The Balanced Budget Fetish

Our provincial government is soon to bestow upon us legislation mandating future governments to balance the budget except in dire circumstances. One can safely predict that this measure will be lauded by most media commentators. The balanced budget is an important component of the current orthodoxy. Anyone opposing can expect to be labeled a Keynesian inflationist or a ‘tax and spend’ liberal.

The arguments are by now familiar. Everyone ‘knows’ that we have to live within our means, so should government. Past governments have been profligate spenders and have saddled us with debt. This debt is a burden to future generations and thus indicative of moral failure.

Given the current fiscal context, this legislation can be expected to pass with little public opposition. Few remember the severe recession of 1990-92, and many of those who do believe that it was caused in part by the huge deficits of the day. Government borrowing was alleged to crowd out’ business borrowing and inhibit investment. The supply siders told us that government was too big, taxes were too high, and only the private sector could provide jobs. From this paradigm the Harris Tories emerged.

But troublesome questions remained.

Why would business invest if sales were falling? If government spending fell along with consumer spending, who would buy the goods? In the Great Depression, M. Keynes took a hard look at these questions and found that demand, not supply, was the problem. There could be no recovery until spending increased, and that spending initially could only come from government. He advocated government borrowing to finance public works to stimulate the economy.

The enormous deficits of WWII proved him right and for many years thereafter the economic role of the government, especially in times of recession, was generally accepted. But there was a flaw in Keynes’ theory. The borrowing he advocated did run up the debt. As governments created less legal tender, money creation became privatized. By 1980, virtually all new money was debt, borrowed into existence by individuals, business or government. The burden of interest payments began to rise rapidly. The only way to pay was to create more debt money, and societal debt, both private and public, began to escalate. The Harris Tories would have us believe that the current boom is due to their tax cuts and restored business confidence. In reality it is due primarily to our vastly increased exports to the US. And why is the US economy booming? The fundamental reason is an enormous increase in debt, both public and private.

The past decade has seen a vast increase in the US national debt of over $2 trillion. The total national debt now exceeds $5 trillion. This in turn, has stimulated an equally huge increase in business and household debt. The monetisation of these debts, public and private, have brought about a concomitant increase in demand and the US economy has enjoyed a sustained boom. Obviously such a debt-based boom is not sustainable. When the bubble bursts, we can be sure that Ontario’s economy will suffer. This happened in 1981 and 1991. and our dependence on exports is greater now that it was then.

It is a wonderful irony that the Harris Tories, sworn enemies of deficits, debts and taxes, are the beneficiaries of US deficits and debt. Of course, they have helped themselves a little by running up the provincial debt by $22 billion since 1995. But the dependence of the economy on debt must never be acknowledged. To do so would expose the fragility of the whole shaky edifice. It is safer to deal in simplistic homilies like lower taxes, less government, and ‘living within our means.

David Gracey

–from COMER, January 2000



10: Taxation DVP

This is the text of the Draft voting Paper to be debated at a workshop at the EWNI Green Party’s Spring Conference in March. If agreed, it will then go to the Autumn Conference as a Voting Paper for adoption.


EC700. Taxation is needed in order to fund government expenditure. However, the raising of funds is not the only purpose of taxation. The way that taxes are levied also has a vital role in bringing about a green society based on social equity and ecological sustainability.

EC701. Direct taxation, in conjunction with benefits payments, can be used to create greater social equity and justice. Indirect taxation can be used to try to alter consumption patterns and create ecological sustainability.

The purpose of a green taxation policy should not be to shift the overall relative burden of taxation either towards direct or towards indirect taxation. Instead, the aim is to alter our approaches to both direct and indirect taxation so that it is better suited to help bring about a green society.

EC702. In general, indirect taxation is regressive, i.e. it impacts more heavily on the poorer members of society than on those who are more wealthy. In this way, indirect taxation works against the creation of social equity and, therefore, against the aims of a green society. For this reason such taxes should not be levied unless their intention is to bring about ecological sustainability.

Direct Taxation

Income Tax

EC710. Income Tax is the instrument by which all citizens who are able to can contribute a proportion of their labours to the running of public services. It is also, when combined with benefit payments, the primary way in which wealth can be redistributed in order to create a fairer society.

EC711. Personal tax-free allowances will be abolished, having effectively been replaced by Citizen's Income (see EC730 below). Income Tax will be levied on all income above the Citizen's Income. Tax rates will be banded and will increase progressively so that those on higher incomes are paying higher marginal rates of tax.

EC712. In order that people are not penalised by paying high rates of tax in one year, whilst their income dramatically drops in the next (either through personal choice or for reasons beyond their control) income will be averaged over five years and the tax calculated on the rolling average figure.

National Insurance

EC720. National Insurance is a form of income tax in disguise. As it is only levied on "earnings" (i.e. wages and self-employment income), it means that "unearned" investment income is currently taxed at a lower rate than "earned" income.

EC721. Under a green taxation system, National Insurance will be abolished as a separate entity and merged into general Income Tax. The distinction between "earned" and "unearned" income will no longer be used to determine different methods of taxation.

EC722. A person's entitlement under SERPS is currently calculated with reference to National Insurance payments made. With the abolition of National Insurance, SERPS entitlements will be calculated as a percentage of Income Tax payments made. Taxpayers will not be able to opt out of this system.

Citizen's Income

EC730. A Citizen's Income will be introduced, which will replace tax-free allowances and most social security benefits. This will be paid to everyone, and will not be subject to means testing. There will be not requirement to be either working or actively seeking work.

EC731. The Citizen's Income will eliminate the unemployment and poverty traps, as well as acting as a safety net to enable people to choose their own types and patterns of work (EC400). The Citizen's Income scheme will thus enable the welfare state to develop towards a welfare community, engaging people in personally satisfying and socially useful work.

EC732. The Citizen's Income will initially be introduced at a level of benefits which a single non-working adult is entitled to (currently called the "Jobseeker's Allowance"). Children will be entitled to a reduced amount which will be payable to a parent or legal guardian. Elderly people, people with disabilities or special needs, and single parents will receive a supplement.

EC733. When the Citizen's Income is introduced it is intended that nobody will be in a position that they will receive less through the scheme than they were entitled to under the previous benefits system.

EC734. Initially, the housing benefit system will remain in place alongside the Citizen's Income. This will subsequently be reviewed to establish how housing benefit could be incorporated into Citizen's Income, taking into account the differences in housing costs between different parts of the country and different types of housing.

Capital Gains Tax

EC740. With the introduction of the Citizen's Income and the removal of personal tax-free allowances, Capital Gains Tax exemptions/thresholds will also be removed, with the exception of a person's only or main home which

will continue to be exempt. Capital gains will be added into a person's income for a tax year and be subject to Income Tax in the normal way. Similarly, capital losses will be used to reduce a person's taxable income.

EC741. The Green Party would tax all capital gains made on investment assets (see EC740 above). In order that this is done even if the asset is inherited on the death of the owner, Capital Gains Tax will be levied on the unrealised Capital Gain on any investments which are still held as if they had been sold at the date of death.

EC742. Short-term speculative trading in stocks, shares and currencies has a destabilising effect on the economy as a whole. In order to discourage such trading, a small tax will be levied on the value of all stocks, shares and currency transactions. This would be set at a low level in order to not significantly discourage longer-term investments.

Inheritance Tax

EC750. The principal purpose of Inheritance Tax is to prevent the build up of wealth and power amongst a privileged class. With the taxing of unrealised Capital Gains at the point of death (see EC741 above), the size of inherited estates will already be reduced. Further taxes, in the form of Inheritance Tax, should be designed to redistribute wealth without being so wide in scope that they become a financial and bureaucratic burden on most ordinary people.

EC751. Inheritance Tax will be reformed so that it is calculated on a "recipient basis" (i.e. with reference to the circumstances of the person receiving the inheritance rather than the donor). It will also be extended to include gifts made during a donor's lifetime, rather than just those given as inheritances on death.

EC752. There will be an annual exemption/threshold for amounts received as gifts or inheritances. As with Income Tax, receipts of this kind will be averaged over a five year period. Any taxable amounts which remain above the tax-free threshold will be added on to the recipient's income and taxed accordingly.

EC753. The tax-free threshold will be sufficient to ensure that most ordinary gifts between members of families with moderate incomes will not be taxed, and, as gifts will be averaged over a five year period, it will also allow for larger "one-off" gifts (such as those received on marriage, or given by parents to their offspring to help them buy a house).

EC754. As with Capital Gains Tax, a person's only or main home will be exempt from Inheritance Tax. If a person inherits property which is already their principle private residence there will be no inheritance tax to pay.

Corporation Tax

EC760. Corporation Tax will be levied at a single uniform percentage rate. The Corporation Tax rules should not give any advantageous tax conditions to businesses purely on the grounds that they are incorporated.

EC761. Some businesses operating within the UK do not currently pay UK taxes because they are subsidiaries of foreign companies. The Green Party would change this so that company profits earned in the UK were taxed here. To do this, any internal management charges or transfers of funds between UK companies and their foreign parent company (or other foreign subsidiaries of the same parent company) will be disregarded when calculating Corporation Tax due. For charges which relate to the purchase of raw materials or goods for reuse or resale in the UK, these will be allowable as tax-deductible

expenses at a fair market rate which will be determined when the goods are imported into the country.

Indirect Taxation


EC770. VAT is the largest revenue provider of all current indirect taxes. It is often referred to as a tax on "consumption", whereas it is more accurately described as a tax on the spending of money. In conventional economic terms these might be seen to be the same thing, but to greens the word "consumption" implies the using up of the world's valuable resources and this is the type of consumption that we would wish to tax in order to encourage resource conservation.

EC771. The current system of VAT is regressive and is not intended to bring about any ecological benefits. It therefore does not fit with the principles of green taxation laid out in EC702. It is also highly bureaucratic and a severe burden on many small businesses. For these reasons, the Green Party would phase out VAT and replace it with a system of environmental taxation measures ("eco-taxes"). These will target specific products, production methods, resources used and pollutants produced in order to discourage ecologically unsustainable consumption (see EC780).


EC780 A system of environmental tax measures ("eco-taxes") will be introduced alongside the phasing out of VAT. Such taxation is designed to encourage movement towards a sustainable economy, by increasing the prices of items or services which are produced using unsustainable or polluting practises. It will therefore be calculated to achieve the desired environmental effects, not to maximise revenue. It is acknowledged that environmental taxation can only be successful when integrated with a great many other policy measures, including regulation where necessary.

EC781. Eco-taxes can be expected to decrease in their revenue raising power as their purpose takes effect. However, as much of the revenue from these taxes will be spent on measures to combat pollution and its effects, the need for such revenue can also be expected to decrease as we move towards a more sustainable society. Therefore, although the operation of all related policies will be continuously reviewed, it should not be assumed from the outset that a reduction in eco-tax revenues will result in funding shortage.

EC782. Eco-taxes will be levied as close to the point of production as is practical. Resource taxation will be charged on the use of raw materials, and will reflect their relative scarcity and the environmental disruption caused by their extraction. The raw materials which would be subjected to such resource taxes include fossil fuels, hardwoods, metals, minerals and aggregates.

EC783. In order to prevent taxes on fossil fuels from impacting too heavily on the poorest members of society through their domestic fuel bills, households will be given a tax-free (or cost-free) initial fuel allowance which will vary according to the season to reflect basic heating needs. Fuel suppliers will no longer be allowed to levy standing charges for fuel supply, nor to give price discounts for increased fuel use. In this way, the amount paid by the customer for increased fuel use will better reflect the environmental impact.

EC784. Road fuel duties are important in encouraging drivers to become mileage conscious. As far as is practical the costs of motoring should rise in line with increased car usage, to make increased car use less attractive and encourage the use of public transport. Fuel taxes should therefore be increased to incorporate both the present Road Fund Licence ("tax disc") and a third-party insurance levy. The "insurance levy" could then be given back to car owners in the form of a voucher which could be redeemed against their insurance premiums.

EC785. As well as taxing the use of resources which are input into a production process, taxes will also be levied on the outputs of those processes, depending on their ecological impact. This will include taxes levied on the desired products of manufacture if they are considered to be pollutants (e.g. pesticides or plastic packaging products) as well as taxes on waste products and emissions (e.g. toxic gases) which are discharged into the surrounding environment.

EC786. Import duties will be levied on both raw materials and finished products which will reflect the ecological impact of the production, extraction and transportation of such goods where sufficient eco-taxes are not considered to have been levied in their country of origin. This system will include a reintroduction of duties in goods imported from other European Union countries where considered necessary.

(MOTION: Also delete the following sections from MfSS:-

LD400-LD404 & AG604 (Land Value Taxation)

FD500 & AG603 from "Pollution and resource..." to end. (Both these sections are, in effect, proposing a form of VAT on food.)

Contact: Jonathan Dixon



- 11: -


"In a world of plenty, there is no need for poverty and debt. We have the technology to feed, house and clothe all people on earth without destroying our environment. Whatever is physically possible and socially desirable can be made financially possible. This is everyone's concern and it is urgent."


Where's the Money to Come From??

Where does money come from?



(First edition – Feb. 2000)

A Challenge – a discussion document outlining the reasons why we need to look at the issue of monetary reform, as the most fundamental issue for a sustainable future, and to formulate and promote appropriate policy–urgently.


Written by Brian Leslie, 12 Queens Road, Tunbridge Wells, TN4 9LU

[email protected]


Drafts of this booklet have been distributed for comment and input .

Further input, comment and discussion is welcome, to develop a second edition, expanded/more effective/persuasive.


 Where does money come from?


a) Trees? b) Thin air? c) The government? d) The Bank of England? e) Commercial banks?

Well, yes; not a). It really doesn't grow on trees!

–but b)? In essence, YES!…

(c) Notes and coins are created by government, and become part of government spending–but this means that less than 3% of our money is now created by government, despite popular belief.

Over 97% of the money used by society currently consists of nothing more than book-entries or data in computers, kept mainly by the commercial banks–so the correct answer is, almost entirely, e). (Long ago, governments/monarchs created all their nations' money, but the banks have been increasingly taking over this function during the last three centuries or so.)

When a bank makes a loan, it does not take the money from anyone's account, or even from its own funds. It simply creates the money, by crediting its customer's account with the amount of the loan–a 'liability' to the bank–and balancing its books by entering the new amount owed to it as an 'asset'. This is how the 'money supply' grows: by continuous increase in borrowing–but therefore with a corresponding growth of debt, which almost exactly matches it.

It has to grow, because always more has to be found for repayment than has been loaned, due to the interest charged on the loans–so further loans have to be made, for this to be possible. The interest received by the banks is partly paid out again, as its operating expenses and dividends to shareholders, but much is retained as "reserves", which have to grow in proportion to the growth of the money stock, and are not then available to perform as part of the money supply.

Money paid to shareholders goes largely into further shares and luxury items, e.g. antiques and works of art, circulating in an "upper level" and so is also largely unavailable for purchase of industry's current products, which must be sold to enable the debts incurred in their production and distribution to be repaid, with interest.

There is a constant effort to increase the money supply by persuading people to increase their level of debt–as "consumers", in the form of mortgages, HP, credit cards; as businesses, for expansion, for modernising, for automating, for aggressive advertising. Enormous effort and materials are expended by the advertising "industry", and on wasteful, "persuasive" packaging.



–from The Grip of Death

Why does this matter?

It matters in several ways:

1) It does not ensure that the money supply is matched to society's needs, and results in a cycle of booms and slumps. With a money supply consisting of interest-bearing debt, booms and slumps are inevitable. When banks are confident of a growing economy, they lend freely–until they become worried about the security of their loans and start calling them in, and refusing further loans. This starts a vicious circle: contraction in the money supply, making it difficult for firms to stay in business; less money paid out for employment making less money available for purchases. Lower sales figures causing more business failures; etc. Eventually something will reverse the process: in the '30s, massive government spending (of money borrowed from banks) for the "New Deal" in America; for rearmament in Britain and Germany …

This process was most dramatically evident in and following the '20s stock market crash, and has been happening repeatedly on a smaller scale before and since. The ratio of total debts to bank reserves is now far greater than in the '20s.

2) It gives the banks power to decide who can get loans, on what terms, for what purpose. They then decide this according to their own needs for reliable repayment of the loan and interest, and for collateral which they can claim in case of default. Society's needs are irrelevant to their decisions.

This results in their support for many socially/environmentally damaging projects, as long as they can expect to bring in enough profit; and in their support of large companies, and discrimination against small firms and individuals, with often punitively high interest charges for small loans, even where they are actually granted and not refused. Many small firms have been bankrupted when banks have called in their loans or refused to extend or increase them at critical moments, just when profitable trading was in sight.

3) It results in growing indebtedness, and growing competition for funds and profits to discharge the debts; it causes the crazy, desperate struggle between nations to export their internally unsaleable goods, in exchange for foreign debt. This has caused two world wars, as well as countless other wars.

It also imposes high levels of interest on this debt, causing the growing divide of extreme wealth and poverty–and giving the banks huge profits, out of proportion to the service they perform.

Practically every country has a growing national debt–and the country with the biggest national debt is the richest: the USA.

More and more farmers are going bankrupt. Between 1978 and 1992 farmers' income halved and interest charges on debts increased by nearly 50%.

More and more people have large mortgages. In 1960 3.3 million properties were mortgaged; by 1996 this had risen to 11 million–from under 20% to 45% of all houses.

Industrial and individual debts are now increasing by about 10% a year.

Since the total of debt is larger than the money supply, it is quite impossible for all debts to be repaid–and any serious effort in that direction would collapse the whole money supply!

4) It requires a growing money stock, to pay the interest on these increasing debts. This makes essential "the growth economy" or price inflation, or both.

To attempt to repay these debts we cut expenditure, improve "productivity" (per person, not of non-renewable resources, machines, etc.) Despite the incredible productive capacity of the modern economy the workforce is required to work ever harder, with increasing stress and poor pay–we are always chasing insufficient money. There is not enough money circulating because of the money system, and not because of any shortage of resources.

The shortage of money for "consumer-spending" creates intense competition for sales, driving down prices and with them, the quality of the products.

5) It is the driving force of Finance-Capitalism; and Finance-Capitalism requires scarcity, to "maintain markets"–and thus profits.

Between the two World Wars, "surplus" food was destroyed on a massive scale, to maintain prices while millions starved for lack of the means to pay for it. "Poverty in the midst of Plenty!" was the campaigning cry of the growing monetary reform movement of the time.

After the second World War "planned obsolescence" was dreamed-up, along with the arms race and wars, to ensure that the huge wartime increase in productive power should never, applied to peacetime production, be able to "saturate the markets"–that is, we should never achieve abundance, and meet everyone's needs. If abundance were ever allowed to emerge, finance-capitalism would collapse in unredeemable debts!

To maintain demand for its goods, ever since the last world war industry has been developing and perfecting its strategy of planned obsolescence as it squanders resources and pollutes the planet. An essential part of this strategy is to persuade, if not to force people to throw away what they have and buy new–in fact, to regard buying new as a prime objective in life! Massive resources are devoted to this campaign of persuasion, and the giving of new meanings to such words as "disposable" is an essential part of this effort.

A more widely recognised, more obviously murderous aspect of this plan is the build-up of the arms industry, supported by the military build-up. This was ably summarised by Philip Agee in 1991*:

"Bush is trying to use the Gulf crisis, as Truman used the Korean War, to justify enormous military expenditures in reaction to economic slump and recession, while reducing as much as possible spending on civilian and social programs. Exactly what Reagan and Bush did, for example, in the early and mid 1980’s with the "evil empire" scenario as justification.

"In early 1950 the Truman Administration adopted a program to vastly expand the U.S. and West European military services under a National Security Council document called NSC-68. This document was Top Secret for 25 years, and only by error was it released in 1975 and published. The purpose of military expansion under NSC-68 was to reverse the economic slide that began with the end of World War II wherein the U.S. GNP had declined 20% and unemployment had risen from 700,000 to 4.7 million. U.S. exports, despite the subsidy program known as the Marshall Plan, were inadequate to sustain the economy, [my italics] and remilitarisation of Western Europe would allow transfer of dollars, under so-called defense grants, that would in turn generate European imports from the U.S.

"As NSC-68 put the situation in early 1950: "the United States and other free nations will within a period of a few years at most experience a decline in economic activity of serious proportions unless more positive governmental programs are developed.."

"The solution adopted, the ‘more positive governmental programs', was expansion of the military. But support in Congress and the public at large was lacking, for a variety of reasons, not least the increased taxes the program would require. So Truman’s State Department, under Dean Acheson, set out to sell the so-called Communist Threat as justification, through a fear campaign in the media that would create a permanent crisis atmosphere."

By the insane logic of the debt-money system, governments cannot afford the socially beneficial spending on welfare and infrastructure, but can, indeed must, afford unlimited spending on armaments–for their own country's defence against trade-war competitors driven to desperation, as well as the most profitable and reliable export commodity, needed to bring in the money to allow their citizens to buy their necessities.

Governments and central banks nowadays try to steady the economy to avoid the extremes of boom and slump, by manipulating interest rates. Raising them makes borrowing more expensive, and so "cools" an "overheating" economy–regardless that it causes an increase in bankruptcies and house-repossessions from mortgagees who can no longer afford the repayments, especially if they are also the unfortunate victims of the cut-back, who have lost their jobs or gone bankrupt. High interest rates are, of course, a boon to lenders–the banks and the rich.

When the recession appears to be getting out of hand, interest rates can be lowered again, to restimulate borrowing and spending.

6) It allows financial speculators, using this unreal money, to gamble the world's currencies against each other, and destroy the world's economies. The "Asian Meltdown" and its spread to Russia, etc. would not have been possible without bank-created "credit".Over 90 times the money needed for international trade in goods and services changes hands in this gambling.

This issue is the fundamental driving force of the "growth economy".


It does not have to be like this!

The last few centuries have seen a struggle between bankers and governments–or people within them who understood the issues and were not in the pockets of the bankers–for the power to create our money supply. The bankers sought to gain the enormous power and wealth they now command.

The issue is not simply which is the right institution to hold this privilege, but how the money should be brought into circulation. When a government issues notes and coins, it gets the benefit as revenue of their face value, less their production cost. This is known as "seigniorage". It then spends the money, allowing it to circulate as a medium of exchange, without a matching (and interest-bearing) debt–so it can continue indefinitely to circulate.

In contrast, money existing only as "credit" resulting from a bank loan is constantly being chased to be repaid and cancelled out of existence, as well as accumulating massive debts and interest-debt due to the banks of issue. It requires an ever-growing total of new debts to be taken on, to replace those paid off and so to keep the system functioning.


What alternative is there?

Government has the power to create all our money, and can spend it all into existence, not only as notes and coins but also as credit–but without the corresponding debt, and without the interest currently charged on it.

There is nothing new about this proposal. Abraham Lincoln financed the American Civil War with government-issued "greenback" notes and so without increasing the national debt (he would doubtless have issued credits instead, if this form of money had been the normal form at that time). (See box.)




Money is the creature of law and the creation of the original issue of money should be maintained as an exclusive monopoly of National Government.

Money possesses no value to the State other than that given to it by circulation.

Capital has its proper place and is entitled to every protection. The wages of men should be recognized in the structure of and in the social order as more important than the wages of money. No duty is more imperative on the Government than the duty it owes the people to furnish them with a sound and uniform currency, and of regulating the circulation of the medium of exchange so that labor will be protected from a vicious currency, and commerce will be facilitated by cheap and safe exchange.

The available supply of gold and silver being wholly inadequate to permit the issuance of coin of intrinsic value or paper currency convertible into coin in the volume required to serve the needs of the people, some other basis for the issue of currency must be developed, and some means other than that of convertibility into coin must be developed to prevent undue fluctuations in the value of paper currency or any other substitute for money of intrinsic value that may come into use.

The monetary needs of increasing numbers of people advancing toward higher standards of living can and should be met by the Government. Such needs can be served by the issue of national currency and credit through the operation of a national banking system. The circulation of a medium of exchange issued and backed by the Government can be properly regulated and redundancy of issue avoided by withdrawing from circulation such amounts as may be necessary by taxation, redeposit, and otherwise. Government has the power to regulate the currency and credit of the Nation.

Government should stand behind its currency and credit and the bank deposits of the Nation. No individual should suffer a loss of money through depreciated or inflated currency or bank bankruptcy.

Government possessing the power to create and issue currency and credit as money and enjoying the right to withdraw both currency and credit from circulation by taxation and otherwise, need not and should not borrow capital at interest as the means of financing governmental work and public enterprise. The Government should create, issue, and circulate all the currency and credit needed to satisfy the spending power of the Government and the buying power of consumers.

The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government's greatest creative opportunity.

By adoption of these principles, the long-felt want for a uniform medium will be satisfied.

The taxpayers will be saved immense sums of interest, discounts, and exchanges. The financing of all public enterprise, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own Government.

Money will cease to be master and become servant of humanity. Democracy will rise superior to the money power.

Lincoln issued "Greenbacks" – government-created currency in the form of ‘green-backed’ (i.e. printed) notes – to pay for the civil war, and so did not burden the USA with the interest-bearing debts which would have resulted from loans of bank-created money to the Government.

Soon after that war, he was assassinated.


There are many other examples recorded of similar action by governments, both local and national, with dramatic improvements resulting; and many proposals from prominent economists of the past for monetary reform on these lines.

However, just as Lincoln was assassinated before he could make his reform permanent, so by fair means or foul, the bankers have always so far won out in the end.

Fear …

Many who have understood the implications of monetary reform, including some in the Green Parties, are afraid to "rock the boat". They fear a backlash from the powerful people benefiting from the present system.

They are right to be worried; many atrocities have been committed in the past to preserve those privileges. But fundamental reform is becoming desperately urgent. Society and the environment are on the verge of collapse–and that should worry everyone! Increasingly, influential economists and campaigners are speaking out, and gaining respect for it. Increasingly, those at the top of the pile are realising how precarious and damaging is their position. They too must be experiencing fear!

All the main political parties around the world are now firmly in the pockets of the bankers and the multinationals the banks have created by their policies; their leaders are the dupes or paid servants of them. Bribery and corruption are rife. (See the periodical Corporate Watch, or David Korten's book, When Corporations Rule the World.)


"The collapse of the global marketplace would be a traumatic event with unimaginable consequences. Yet I find it easier to imagine than the continuation of the present regime."

– George Soros



When that collapse does occur–if reform is not adopted to escape or forestall it–we need to be ready with workable alternatives, to stop history repeating itself.

How can it be done?

Again, there are many ways proposed to make the changeover, at a stroke or gradually, and their merits need to be compared. One of the most recent is from Professor Joseph Huber of the Martin-Luther-University in Germany. He calls his proposal "Plain Money", and in essence he proposes that on a given date, all the banks' customers' chequeable "sight deposits" should cease to be part of banks' "assets". Money in customers' current accounts would henceforth belong to those customers, though lodged with the banks for safekeeping and accounting–they could no longer be claimed by the banks, and "owed" to the customers. Banks' customers' deposit accounts would become the sole source, other than the banks' own capital or money from other banks, on the open market, or from abroad, available for bank-loans to private businesses and the public. They would no longer be allowed to lend money into existence. Credit in bank accounts, as well as coins and notes of the realm, would be legal tender–Plain Money.

An alternative arrangement, with similar effect, would be for all the banks' "assets" which consist of outstanding loans to be transferred to the central bank, so that the repayments would be made, via the banks, to that central bank. Again, banks would henceforth be restricted in their lending to the sums placed in deposit/savings accounts, plus any of their own capital surplus to reserve requirements, etc.

The central bank would then have the responsibility to decide the amount of new money needed by society at, say, monthly intervals, and tell the government to spend it into existence, perhaps as part of Citizens' Incomes. Initially, some of it may need to be lent to banks to provide extra funds to meet demand for borrowing, but as the total of money spent into existence grew, it would allow debts to be paid off. This would reduce the amount of debt-money in existence, rather that increasing the total money supply. It would, over time, reduce the levels of outstanding debts–ultimately to a negligible amount–and so reduce the need for further borrowing.

How to decide how much money is needed in these new circumstances will have to be determined over time in light of experience, but this period of trial and error cannot be worse than the present situation.

With the level of indebtedness reducing, the stresses and strains created by this system should progressively reduce, and it is probable that ensuring enough money is available is far more important than making sure not to over-supply it. There must be enough to allow the purchase of the goods on sale, and for investment in new production, for savings, etc., but the velocity of circulation, as well as the size of the money stock, will influence this. The only limits which need be placed on production would be those arising from nature–the need to limit pollution to the absorbing capacity of the environment, and the need to conserve and recover non-renewable or over-used resources. Whatever is physically possible and socially desirable can and must be made financially possible.

As "plain money" replaced debt-money, the general level of debt would shrink, and banks would be competing hard to find borrowers, so interest rates should eventually drop to, perhaps, the 1/2% to 1% that the "bank rate" was kept to during the second world war, and which covered administration costs, with a small margin for profit.

Banks would probably compensate for the loss of income from the interest on the money they were now prevented from creating, by reintroducing/extending service charges on transactions, but competition should keep these low. The result would be a fairer distribution of the costs of banking than occurs now–and the lifting of them from those without bank accounts!

Another factor influencing the amount of national money needed is the extent of use of alternative currencies, such as LETS, or local community currencies, and the size of the moneyless "gift economy". While the law continues to require certain payments to be made in national currency, and it is also needed for exchange into foreign currency, these alternatives cannot replace it, but they could significantly reduce the volume of it required.

Though not part of Huber's proposal, the new money can be used in part to buy back government bonds as they mature, and so reduce and eventually cancel the national debt–the interest on which now costs us enough to fund the health and education budgets.


This is the usual dismissive accusation launched by bankers and their friendly "economists" to discredit any proposal for government to create more of the money supply, when in fact it is the banks' interest-bearing debt-money which is itself a main cause inflation–as well as far more serious problems! (Usually no attempt is made to justify this accusation; it is assumed to be self-evident!) The very meaning of "inflation" is, in fact, highly questionable, as well as are the causes.

The reform proposals would give government, or preferably another publicly accountable body such as the central bank, full control of the money base, and the possibility to make money serve society, instead of controlling and destroying it.

The monetary authority should be democratically accountable, and charged with the duty of managing the money supply to meet the needs of society. The data and criteria used should be open to public scrutiny and debate, In the last resort the monetary authority would be open to direction by parliament.


Citizens' Incomes

For a sustainable economy, we need to end the "need for growth", which is supposedly required to provide the incomes which derive from paid employment, and which are accepted as necessarily the main source of income for nearly everyone. This means that basic ("Citizens'") incomes must be provided independently of employment, if we are to enjoy the potential of modern technology to provide increasing leisure, with efficient production for need, in place of the present mad competition to exploit people and resources to keep an unsound system going.

If Citizens' Incomes were introduced and initially funded out of new, debt-free "credit" (or "plain money", to use Huber's term, to distinguish it from bank-created debt-money ("credit"!)) then the combined effect of these proposals would be dramatic indeed. Citizens' Incomes would replace most benefits, such as JSA, and given monetary reform, could be set at a much more generous level than is possible without it.

This would have the effect of freeing people from the compulsion to find paid employment. Self-employment and co-operatives could flourish, and no longer would people be forced into telesales; distributing free, unwanted advertising material; road building; armament production; the armed forces, … The pathetic efforts to escape poverty by starting unwanted businesses, doomed to failure, need no longer be made. No employer would be able to exploit its workers, as they would be able to dictate terms. It would spell the end of wage-slavery. Industry could be transformed to produce, efficiently, the high-quality, repairable, indefinitely durable goods we would all prefer, given the money to allow us this choice–without worries about redundancies or saturation of markets as needs were met. Co-operatives could flourish, with the fall-back of Citizens' Incomes to support their members.

Citizens' Incomes would also have a major effect in countering the uneven distribution of income among the various regions of the country.

The "gift economy" could flourish as never before, and increasingly replace the money economy, starting with the areas in which it has been driven out over the last century and more: the domestic and local community.


Not all government expenditure can be funded by its creation of Plain Money, even in the initial stages of conversion, when funding entirely in this way could result in "too much money" and cause unacceptable inflation. Ultimately, once all the debt-money had been retired, no further creation of Plain Money would be needed, unless the economy needed to grow.

With the ending of the pressures and distortions created by debt-money, contraction of the economy should be expected, after an initial period of expansion while all the needed but neglected aspects of the economy and infrastructure were put right (repair, modernising and rebuilding of the Victorian sewage system, changeover to organic farming, repair and insulation of the housing stock, development of renewable energy sources, local production developed to meet local needs, redesigning and producing high quality products designed for durability and easy repair…).

The pressures to create artificial demand would have been removed. Debt would have become the exception, instead of the rule.

This means that taxation would be needed to fund most government expenditure; but most people would have become far better off, and so better able to afford it. Conversely, as people gain in prosperity, less government spending will be needed to support them.

Eventually some additional taxation may sometimes be needed to withdraw surplus money from circulation, as use of money contracts, to avoid a situation where there is genuinely "too much money".

The type of taxation should change, however. Just as Citizens' Incomes can be seen as the distribution to all of the "common cultural inheritance" of knowledge and infrastructure from the past, and of the natural resources on which all wealth is based, so the value of those natural resources should be collected for distribution by Land Value Taxation–a tax on the rental value of all land–and resource taxation on all non-renewable or overused natural resources, such as metals, aggregates or timber. These taxes should be applied as near as possible to the point of extraction from the environment, and by pushing up their prices closer to their true value to society, would give a great boost to economy of use, to recycling and to substitution by more abundant alternatives. Pollution taxes should also be applied, to protect the environment from damage, supplementing direct regulation or prohibitions.

The benefits of the "common cultural inheritance" are currently claimed mainly by large commercial companies. This suggests that they should be heavily taxed. Though this would push up the prices of their products, it therefore would make competition from small, local enterprises catering to local needs far more viable.

To avoid gross initial injustices, Land Value Taxation would have to be introduced at a small percentage of rental values–perhaps the 10% at which level it now exists in a number of places–and slowly increased, eventually to 100%. As revenue from this source increased, income tax–a tax on effort–could be reduced; I would suggest, by progressive raising of the tax threshold, so that fewer and fewer people would remain "in the tax bracket". Eventually it may be possible to end income tax altogether. By then, the extremes of income should have shrunk to socially acceptable and justifiable levels.

Government spending

Any government adopting this measure will have no problem funding needed social services; conversely, it would not need to yield to pressure from Big Business for subsidies to "create" or to "preserve" jobs, or to bribe foreign firms for "inward investment". It could spend as much as society required it to, limited only by the physical constraints on production of wealth. But with adequate Citizens' Incomes, the need for Government spending on support services would be greatly reduced. As already mentioned, the National Debt could be redeemed, as the bonds and securities it consists of came to maturity.

Foreign Exchange

These internal changes need not affect present arrangements for foreign exchange, except in the detail that banks would not themselves be able to create the money for exchange. If this country introduced monetary reform on these lines, other countries which have not also reformed their money systems would remain desperate to export to us, glad to accept our debt in exchange, to prop up their "economy", and if we needed to export our goods, our government could choose, if necessary, to subsidise them.

Low–or eventually perhaps zero–interest rates on money loaned for investment, and greater funds available for reinvestment without need for borrowing, would not encourage "inward investment", but we would have no need to seek such "inward investment", since we would be creating enough money to fund our own investment.

Exchange with any other countries with reformed systems would be a matter of exchanging genuine surpluses for mutual benefit. Neither country would be desperate to export in order to keep its "economy" going.

The Pound Sterling is one of the world's "reserve currencies", used by other central banks a more dependable alternative to their national currencies. (The US Dollar is currently the major one.) With reform, this country should not need to hold large reserves of foreign currency, but as the Pound could far more dependably be made to retain a steady value, as it would be directly related to the country's productive capacity instead of being vulnerable to manipulation by speculators and misguided counter-measures by our central bank, so it should become a more favoured "reserve" for currencies not yet reformed.

Holding a foreign currency as a reserve gives the country of origin of that currency the seigniorage on it. The US has benefited in this way from billions of dollars worth of imports, much of it at the expense of the Third World. Third World debts are denominated in US dollars, and with US inflation and IMF-enforced Third World currency devaluations, this has hugely increased the debts of the Third World to the USA.

It is clearly wrong for any country to enjoy this advantage, and there is need for an international currency.

One proposal for an international currency, from the Global Commons Institute, is for the IMF to administer a currency based on tradable emission rights for greenhouse gases, issued on a per-capita basis.

If all countries adopted "plain money" systems, the foreign-exchange gambling would not be possible on any significant scale. Meanwhile, the general adoption of the "Tobin tax"–a small tax imposed internationally on all currency transactions–would either kill-off this gambling or restrict it and yield substantial funds for, e.g., international poverty relief, while not seriously affecting international trade in goods and services.

As Mike Rowbotham wrote in The Grip of Death:

"… Monetary reform is an approach to economics–an approach to improving the foundation upon which economies are built. Those who have advocated it are part of a unique tradition of social and economic criticism. Monetary reform is therefore radical in the literal sense, in that it involves first identifying the root cause of related problems and second, searching for solutions that can make a constructive contribution to solving these problems. Not only are there a large number of possible systems of reform, but within each basic scheme or proposal there are a host of options–additional decisions, considerations and possibilities–which again underline the scope of monetary reform. ….

The second point is that monetary reform, whilst it may have simple principles, is a complex issue, involving supportive measures to back up the new monetary flows involved. Any scheme is bound to be speculative and sketchy in the initial stages, and would have to compensate for events as they occur. But with a negative £100 billion monetary base in the UK, there is an undeniable need for a healthy supply of debt-free money, and an awful long way to go before any question of excessive debt-free money creation arises, by which time the major trends would have become evident and any problems begun to be anticipated.

The final point to be made is that not starting a programme of reform is as much an act of faith and a policy decision as deciding to embark on one. It is an act of faith that a financial system that has developed almost by default, based upon minimalist government support and maximum banking activity and deregulation, will not go on to cause even greater damage and social misery. It is also the continuation of a policy of repression and covert rule by finance, and the exclusion of democratic principles from the economic domain."

Again borrowing from Mike Rowbotham's writings:

Constitution of the United States of America:

"Only Congress shall have the power to coin (issue) money, regulate the value thereof..." All banks in America therefore operate in clear breach of the American constitution.

"We believe that the existing system of debt-finance, whereby practically all money comes into circulation as interest-bearing debt is prejudicial to human well-being, a drag on the development and distribution of wealth, finds no justification in the nature of things, and perpetuates a wrong conception of the function of money in human society."

–Congregational Union of Scotland; report 1962

"It is essential that the issue of money be as needed by the whole nation and hence free from private or political influence... If new money is spent (not lent) into circulation. Taxes could be reduced to a small fraction of their present and growing burden and the national debt will gradually disappear..."

–Captain Henry Kirby M.P. (c. 1960–?)

"…. why not challenge the virtual monopoly we have allowed the private sector bankers to exercise over the creation of credit? Why shouldn’t a socially aware and economically responsible government create credit where it is appropriate in order to ensure .... investment is made and at the same time strike a great blow for the democratic control of the economy?"

Bryan Gould; New Statesman. 19 Feb 1993

"We should study credit and how to use it. Why not even appoint a commission on it rather than stand in awe of finance, mouthing the platitudes of piggy-banking? ... Credit is the key. We can control the excesses of private credit. We can mobilise the power of public credit. Government is required to borrow or tax for every penny it spends.... This privatisation of credit can’t be right. Using public credit eases the debt burden. It is creating money, not borrowing it."

Austin Mitchell M.P.: ‘Borrowers can be Choosers’. 1994.


"It is important to be quite clear over what is meant by debt-free money. What is being proposed is that money be created that does not have to be repaid. The two questions which have always vexed both those who have sought such a reform, as well as those who have not fully understood the need for such a reform are these: First, how much of this debt-free money should be created, and second, who is to get this free money? How much debt-free money is needed, and how should it be distributed within society?

"This latter is a major issue. Debt-free money has to get into the economy, and whoever gets it first, gets it literally, free.

"As for a Basic Income, this is simply the most obviously democratic way of distributing the debt-free money needed. It is also highly constructive, since it would offer a positive basis for unemployment, and an end to total wage dependence. Over a period of years, this would inject stable money at a controlled rate into the economy. As debt decreased, and the gap between purchasing power and prices closed, so the need to create money would also decrease.

"No-one goes into debt unless they have to; no-one wants to borrow unless they have to; no-one takes out a loan if they have other funds available. In other words, get the supply of debt-free money right, and the loan system will fall into place. The steady creation of debt-free money would allow consumers to settle past debts, and buy without going into further debt, gradually leading to the replacement of the current stock of debt-money with a permanent stock of stable money. The need to borrow to buy would be substantially reduced. … People and businesses are individually responsible for repaying loans, plus interest, and only use the loan system if there are no other funds available."

– Mike Rowbotham


Further reading:

Michael Rowbotham, Goodbye America! Globalisation, debt and the dollar empire  Publ. May 2000    ISBN 1 897766 56 4   £11 Post free in the UK from Jon Carpenter Publishing, Direct Sales Dept., 2 Home Farm Cottages, Sandy Lane, St. Paul's Cray, Kent  BR5 3HZ (Add 10% for Europe, 20% ROW)             Visa/Mastercard by phone: 01689 870437 - Explores the Relation of Third World debt to globalisation, to the debt-money system, and to the issue of political power.

Michael Rowbotham, The Grip of Death, A study of modern money, debt slavery and destructive economics, Jon Carpenter Publishing, 1998  ISBN 1 897766 40 8   - Traces the influence of the debt-pressures deriving from the money-creation process on the development of the modern, destructive .economy.. and see its fine "Further Reading" section.

Joseph Huber and James Robertson Creating New Money - A monetary reform for the new age New Economics Foundation  June 2000 ISBN 1 899407 29 4   £7.95   -  Looks at changes brought about by computerisation.money as information.and proposes a way to return the seiniorage on money creation to government, its benefits and possible objections, and how this would affect society.  Extensive .Literature. list.

Alan D Armstrong, To Restrain the Red Horse, Towerhouse Publishing Ltd, 1996  ISBN 0 9529320 0 8  - Well researched update of Social Credit.

William F Hixson, It's Your Money, COMER Publications, 1997  ISBN 0 9680681 1 1      $10 + P&p   - A concise, closely argued case for government to create more, and banks less, of our money supply.

William Hixson,  A Matter of Interest.Reexamining money, debt and real economic growth, Praeger, 1991  - A closely-argued, historically referenced  study.

Patrick S J Cormack & Bill Still, The Money Masters.How International Bankers Gained Control of America, 1998  Royalty Production Co.  - Text of a 4-hour video, with appendices, covering events from Christ's expulsion of the money-changers, through European events of the last three centuries, to the US of the 19th & 20th C, in the struggle for power between banks and politicians..Available from Brian Leslie @ £10 + £1 p&p

Eric de Maré, A Matter of Life or Debt, Humane World Community Inc.,1983  ISBN 0 961987`7 0 7   - Passionately argued condemnation of the effects of the debt-money system, but weak on remedies.

Herman E Daly and John B Cobb Jr, For the Common Good, Beacon Press edition, 1994  ISBN 0 8070 4705 8   - Environmental economics, with an .afterword. arguing for monetary reform, on lines of the '100% Reserve' proposal of Irving Fisher in 1935.

J K Galbraith, Money: whence it came, where it went, 1975.  Penguin

Richard Douthwaite, The Growth Illusion, second edition, Green Books, 1999  £12.95   ISBN 1 870098 76 5  - Updated discussion of economic trends, especially the harm done by 'growth'.

Richard Douthwaite, The Ecology of Money, Schumacher Briefings No. 4. Green Books, 1999  £5   ISBN 1 70098 81 1  - Review of the historical and potential future forms of money, and their effects.

David Korten, When Corporations Rule the World, Earthscan, 1995  - Powerful attack on the power and destructiveness of corporate commerce and financial institutions, esp. the IMF and World Bank.

James Gibb Stuart Fantopia Ossian Publishers, 268 Bath Street, Glasgow G2 4JR   £3.95  ISBN 0 947621 13 X  - A parable in 64 pages, illustrating the case for monetary reform..

BAMR (British Association for Monetary Reform), The Spoils of War in Yugoslavia, Monetary Reform NOT Monetary Union, - and other booklets, from BAMR, 20 Windsor Road, Thornton Heath, Surrey   CR7 8HE  01342 410962

New Books from COMER . the Canadian Committee on Monetary and Economic Reform . can be ordered and paid for through me, Brian Leslie, as below:   (Prices include postage)

William Krehm Price in a Mixed Economy soft-cover £15; hard £20

William Krehm Babel's Tower Soft £10 hard £15;

William Krehm How to Make Money in a Mixed Economy  soft £10; hard £15

William Krehm Bank of Canada - a Power unto Itself £8

William Krehm, ed. Meltdown £18

William Hixson It's Your Money £10

Internet: www.sus-tec.freeserve.co.uk

            www.users.globalnet.co.uk/~bamr1                        etc.


© [email protected]

March 2000