Positive Money

Our broken money system can be fixed

By changing the way that money is created, we can tackle some of the major social and economic problems we're facing today >

Home » Our Proposals

Our Proposals

If we want to deal with the big social, economic and environmental challenges that we’re facing today, then reforming the monetary system is a good place to start. We’ve spent the last three years researching the problems caused by the current debt-based monetary system and developed in-depth proposals.

What We Need

This is what we think needs to change to fix our broken money system:

1. Money should only be created through a democratic and transparent body working in the public interest.

We’d like to see the power to create money transferred to a democratic, accountable and transparent process, where everyone knows who has the power to create money, how much money they create, and how that money will be used. However this process is set up – whether it’s the Bank of England or a new committee that decides whether to create money, it must be accountable to Parliament and protected from abuse by vested interests. We also want to see safeguards that ensure that the right amount of money is created – not too much (causing bubbles and a financial crisis) and not too little (causing a recession).

2. Money should be created free of debt

Currently, banks create money when they make loans, which means that for every pound in your bank account, someone somewhere else will be a pound in debt. It means that almost all the money in the economy is effectively ‘on loan’ from the banking sector, and interest must be paid nearly every pound that exists. If we try to reduce our debts, money disappears from the economy, making it harder for others to repay their own debts. But if money was created by the state, in the public interest, and spent into the economy through government spending instead of being lent into the economy by banks, then that money would stimulate the real economy, create jobs, and make it possible for ordinary people to start reducing their own debts.

3. Money should come into the real (non-financial) economy before it reaches financial markets and property bubbles

Any newly-created money should be used to fund public spending, reduce taxes, pay down the national debt or even just distributed to citizens. This means that the money will start its life in the real (non-financial) economy instead of getting trapped in financial and property markets, as happens at the moment.

This will help the economy grow, creating jobs in the process, whereas much of the money that banks create today simply makes life more expensive and unstable for people.

4. Banks should not be allowed to create money

History has shown that when banks have the power to create money, they create too much in the good times, causing financial crises, and then create too little money in the bad times, making recessions and unemployment even worse. They put most of the money that they create into house price bubbles and speculation on financial markets, and only put a small amount into businesses outside the financial sector. We simply don’t think that banks, with all their incentives and need to maximise their profits, can be trusted with something as powerful as the ability to create money. And it’s not enough to regulate them, because regulators have already failed to keep them under control, and there’s no reason why they should get it right this time around. We need to stop banks being able to create money.

In the short-term: Sovereign Money Creation

Sovereign Money (Cover)When we rely on banks to create most of our money, then the only way of getting more money into the economy – and allowing it to grow – is to encourage people to go further into debt. This is why UK government policy is focused on ‘getting banks lending again’ and encouraging people to borrow more for mortgages. But the financial crisis was caused by a huge build-up in private debt, so allowing that debt to increase even further could lead us into another crisis.

What we need right now is to have a way of getting extra money into the economy, but without relying on households borrowing even more. This can happen if the Bank of England creates money and transfers it to the government to be spent into the real economy (rather than the financial or property markets). Our Sovereign Money proposal explains how this could work, how it would lead to a boost in jobs and employment, and how it would make the current debt-fuelled recovery into a sustainable one.

More info & download

In the Long Term:

Ultimately, we think that the economy would be more stable and society better off if we completely remove the power that banks have to create money. These ideas have been around since the 1930s, but we’ve done a lot of work to update them for the modern financial system. You can find out more below:

  • Video

    Video (33 mins)

    Positive Money Founder, Ben Dyson, presenting at the 3rd annual Positive Money Conference “Modernising Money” on 26th January 2013 in London, explains the main principles behind the monetary reform proposals which offer one of the few hopes of escaping from our current dysfunctional monetary system. Watch now (33 mins)

  • Screen Shot 2013-03-22 at 6.50.38

    In Plain English

    A 30-page plain English explanation of how we can fix our money system, written for people with no background in economists or banking. It explains how we can prevent commercial banks from being able to create money, and move this power to create money into the hands of a transparent and accountable body, who would create money in line with the needs of the economy and grant it to government to be spent into the economy.

    More info and free download

  • Screen Shot 2013-01-31 at 15.11.08

    Modernising Money

    Why Our Monetary System is Broken, and How We Fix It. The product of three years of research and development, these proposals offer one of the few hopes of escaping from our current dysfunctional monetary system. It is detailed but accessible to non-economists.

    Buy Now & More Info

  • Screen Shot 2013-04-02 at 15.59.33

    The Positive Money System (Technical)

    A more technical presentation of our reforms, for economists and those with some knowledge of money and banking. It explains how the reforms work from the perspective of a) bank customers, b) the banks themselves and c) the central bank.

    More info and free download

  • draftlegistation

    Draft Legislation

    This unofficial draft bill shows how our proposals could be implemented in law in the UK parliament.

    More info and free download

 


Join the Campaign!

Join the 25,221 of us who know that our money system needs fundamental changes if we want an economy that works for people, not banks.

Please check your email is valid.

Please wait a few seconds while we take you to the next step…

We send news updates and videos fortnightly.
You can unsubscribe at any time and we never share your details.

  • jagung808 .

    Real money are gold and silver. If these two precious metals are in scarcity, use commodities like barley,wheat,salt etc. Real money has intrinsic value in it.

    • Chris Kerr

      I recently heard about a (half-joking) proposal to have a currency backed by bricks instead of gold. At least from a naive viewpoint, this actually makes quite a bit of sense. The biggest problem with commodity standards is that they require scarce resources to be piled up in useless heaps rather than put to economic use; bricks piled on top of one another (in the shape of a wall etc) are still economically useful so this waste does not occur. Additionally, the fact that bricks are bulky and hard to transport would make speculative attacks much less likely.

    • http://blog.mjburgess.co.uk/ Michael Burgess

      How do any of those things have “intrinsic value”?

    • Greenbacker84

      ORLY? Because JP Morgan and the other commodity billionaires say so?
      How convenient for them.

  • http://www.facebook.com/robbeasley Rob Beasley

    The issue is not money. The issue is and always will be about the allocation of scarce resources. Therefore you need a transaction system that transparently discloses the relationship between money and that which it was designed to represent, resources. In particular, elimination of all derivatives would be helpful. Prof. J.H.De Soto has a good first step strategy to move away from the current state with relatively simple steps.

    In the end though, a resource based economy is the best option. Those models however need to be built from the ground up. New Cities are probably worth considering.

  • Barry Cooper

    The problems described are quite real, but the proposal simply transfers power from banks to the government. Whoever has the power to create money has the power to create wealth from nothing. Why is this intrinsically better when done by the government? Why not anticipate an expansion of the symbiotic relationship that already exists between Big Business and Big Government? Because your panel somehow becomes ethically superior? There is no functional difference between banks creating money for themselves, and money being created by government and parceled out to chosen corporations.

    The logical solution is to end money creation outright. This is the ONLY equitable solution, the only solution that does not recreate a de facto master/slave relationship.

    My proposal to do this is here: http://www.goodnessmovement.com/Page23.html

  • Andrew Webb

    Love the new website.

    We have all been brain washed to believe that only the banks are smart enough to create money responsibly. Any alternative that a nation creates its own money supply is treated with complete horror. In true reality, the banks create inflation and deflation on a regular scale. The world economies are constantly unstable because of it. The world is in a deep financial crisis now because of this very fact.

    The real question we should really be asking ourselves is, why are we allowing an independent identity create our money supply when we
    could do it ourselves. The system we have now is unsustainable and can only get worse.

    Money, or the financial credit of an economy, should be an exact and scientific reflection of the actual goods and services, or real wealth, of an economy. If this is followed any independent nation of the world
    can be free from the grips of debt.

    I am glad that you are now looking on using Dividends as a
    way to increase the money supply to the population as well. This was an
    important factor missing until now. Those who do not know the importance of using the Dividend would benefit from reading this section below.

    The reality is that there will never be full employment and why go there any way when we don’t need to? As time moves forward the need of people to work becomes less and less. This should be good! New technologies in all industries are reducing the number of people needed to work there. Machines are taken the jobs from people and the number of hours people work will be reduced.

    Unfortunately, the way it works some industries are affected more than
    others leaving skilled workers redundant no longer required. These people are thrown on the stock pile of the unemployed (also made much worse by the global financial crisis)

    New machinery and technologies should be for the benefit of mankind. These advances should not be negative but positive allowing the population in general to work less and less. The problem here is that as fewer hours are worked,fewer hours are paid for. Do you see the problem? People are getting poorer as wages or jobs are lost. When the population’s wages are reduced their spending is also reduced.

    As a consequence goods remain unsold in stores and shops. You know the rest, higher unemployment and higher levels of government assistance as people’s wages fall below certain levels. Lost tax
    revenue and higher government costs to manage this spiraling problem means further government debt or higher taxes.

    The real wealth in this world is in the land and what we
    make of it such as farming, building and Industry. To distribute this wealth we need a medium of exchange. The role of money is to provide and easy medium to buy and sell things. This money must be produced in correct quantities without cost.

    The production of modern times is vastly different from
    early times. We have now leaped ahead with giant steps in mass production. We have massively increased our capacity to build, grow and manufacture things with an increasingly lower work force required. This progress is passed on from one generation to another and It is a heritage we should all benefit from. Unfortunately this is not the case.

    Because production is no longer the result of labour only, it is a farce to believe that production can be distributed only through the reward of labour. It is the fruit of progress and not labour which is providing these great achievements. There for we must look at this in a different light. As new production methods expand, less labour is required resulting in a rising number of permanently unemployed people. It would also be true that working hours of the work force as a whole is reducing. If people only got paid by the hours they worked their wages would fall.

    To recognize this progress as a national heritage for everyone, a dividend could be used to supplement these lost wages. This heritage should be shared and not lost in the hands of a few. A Dividend could
    also be issued to the whole population when the money supply needs increasing.

    Presently when a nation needs to increase its money supply, it will usually get this from the commercial banks as debt. The Central Bank will inject new money first (usually as debt to the nation) which commercial banks will then multiply through fractional reserve banking. The nature of lending this way means the country will always have a growing need for money to pay its debts, including compound interest.

    With true Credit Creation running, the ability to create new money as credit to the nation is now possible. Money from now on is created on the basis of its real wealth. (This is a primary goal all nations should practice) The money supply should always be kept in check and inline with production of goods and services. A National Credit Office would be set up to ensure a correct money supply in the economy, by issuing or
    withdrawing of money in accordance with the country’s production capacity and demand.

    A national dividend to the population could also be used to expand the
    money supply, very much like stimulus packages used lately to stimulate
    economies. The richer the country is in real wealth the less taxes if would
    require and the more buying power each person has in its currency.

    Hope this makes sense.

    Andrew Webb
    (From Bleeding In Debt)

    • Greenbacker84

      Andrew,
      Mike Montagne of Mathematically Perfected Economy explained explicitly and in detail how we can have true economy, with interest free currency issued by the people via a common monetary infrastructure, back in 1968!

      Banks are NOT lenders, nor do they even really create money. The LAUNDER and REPUBLISH our own promissory notes. The money is backed by our own labour and production. The debt is between the home buyer and the owner (who is paid in full upfront- banks are usurpers).
      The only remaining obligation is to retire/pay principal at an agreed schedule of payments.
      We the people are the source of all new money, banks are fraudulently laundering this money we create, falsifying debt to themselves and charging compounding interest for the privilege.
      When will Positive Money address this upfront? W eve been waiting YEARS and we get silence.
      australia4mpe

      • Graham Hodgson

        “When will Positive Money address this upfront?”
        See Modernising Money

      • antenna:up

        Totally correct. It is analogous to ‘reverse laundering’. The loan process appears to me to only be there as justification for the deeply unethical practice.

        There is no such thing as an ethical bank. Is there no short term answer for people who do NOT want to use a bank at all? It’s seems you are barely allowed to exist without one right now.

        This would hurt banks. Which I feel is good.

  • vhammon

    Your proposal suggest using an inflation rate of 2% as a criteria for new money creation. I’ve read both your books (excellent! and VERY well written) and did not find a rationale for planning for steady inflation. How about using population and productivity to maintain a stable money supply, without inflation? If the inflation issue is about encouraging innovation—I can’t think of any other reason that would weigh more than the disadvantages of continuing a system of exponential growth—, couldn’t that be addressed directly with a 1% for innovation ?

  • joe

    You say you are looking specifically, for people with
    experience of the present – corrupt – financial system to help you “govern” this site. This means you are simply a part of the same problem that exists already since you think you can address this financial problem using THE SAME experience and mindset that created it in the first place – thus, you are more a distraction than solution. You are clearly, more interested in your own rule-making “power” than the actual problems at hand

    You talk about “Human Resources” yet do not appreciate that your acceptance of, and casual use of this very phrase exemplifies the rottenness and base cruelty of the current system – and reflects the fact that you too, happily accept their notion that precious human beings may be regarded as nothing more than a “resource” commodity. Again, your happy use of this vile and disgusting term without conscious appreciation of what it actually infers, demonstrates that you are little more than a distraction – and a grotesque one at that

    “Become a director of Positive Money

    Positive Money is looking for new board members to join our board of directors who can make a significant and positive contribution to the governance of the organisation. In particular we’re looking for directors with at least 10 years experience in areas such as finance, management,
    corporate governance and risk management, company
    law, fundraising and HR.

  • Phil

    It’s all nice and good to have a website with tons of information but what do you guys do to reach the mainstream? It would be good to publish a campaign plan with well defined objectives & milestones and track progress against the plan. You can then reach out to the +10K followers to help meet these objectives. What about a fund raiser to buy a full page in the FT? What about organizing a peaceful walk through the city? Without a proper and transparent program I am afraid your campaign will fizzle out.

    • Erronihim Victor

      One can hope that this website has a chance of being picked up by one of the same FT’s financial correspondents and be mentioned in an article as a credible grass-roots voice for an alternative monetary system.

    • antenna:up

      I wouldn’t hold my breath for ANY newspaper’s help. An crowd source funded advert would be a very good start. Please not the FT, a rag more understanding of all related issues would be more advantageous.

  • anthonychambers

    I am very supportive of the idea of stopping banks creating money. However, I think you really need to think hard about transferring that ability to anyone else. Who says we need more money (in aggregate) anyway.

    If you must produce more money, then it should be distributed equally to everyone and done at a predicable rate. But, I would suggest that government never be given it directly. They would be even worse than the banks. It would become all too politically easy if taxation was so intimately connected with the money supply.

  • Danny Key

    Although positive money are correct about the nature of money and how it works. When they suggest things such as the following:

    “But if money was created by the state, in the public interest, and spent
    into the economy through government spending instead of being lent into
    the economy by banks, then that money would stimulate the real economy,
    create jobs, and make it possible for ordinary people to start reducing
    their own debts.”

    They either fail to see the extreme danger in this or they are fully aware and are pushing a socialist, communist agenda.

    The truly ideal, is that government neither borrows nor creates money, it simply uses what it receives in tax for its funding no more no less. for is that not what was already socially agreed anyway? that the government should have a portion of our tax in exchange for what we consider benefits.

    It is my beleif that alternative digital currencys will dramatically rise in popularity and replace entirely tradional forms of money.

  • tomfrom66

    Osborne’s latest smoke and mirrors are about the sale of Lloyds and RBS.
    Leverage rations at 3% are ludicrous!

  • ettore

    Please Is there anybody going to explain to me how your proposals are possible matching the MEMMT theory

    Thank you

    Ettore

  • Privet Romashki

    Absolutely fantastic web site.

    Clearly and logically laid out with clarity, helped me understand the issues quickly and succinctly.

    Many thanks.

  • non.de.plum

    Another failing of money is its failure to value or to integrate with economic models with a non-monetarist perspective. These other economic forms are ‘fringe’ organisations from the mainstream perspective, but not from the perspective of the tribes, clubs and interest groups who use them.
    Accounting systems using cowrie shells and fishbones, or using knotted string as pseudo-mnenomics for a verbal accounting system, also notched sticks, worked well for long periods within closed circles. Clay tablets representing a fraction of protected consumables such as grain have been used successfully.
    The blame for lack of integration with money goes somewhat both ways.

  • Marco

    Sharing will save our world.

  • db1

    It would be nice if this website could just be honest and say “we want to abolish credit”, but then I guess you would have less supporters.
    When you talk about banks creating money, what many people probably don’t understand is that there is NO difference between what a bank does when it extends credit and what happens when I lend my mate a fiver. I have increased the money supply by £5.
    Your proposals don’t even do what they say on the tin because you you actually still have a mechanism for lending money but use smoke and mirrors to convince (yourselves?) that it isn’t debt. Ridiculous.

    • Mira Tekelova

      You seem to have misunderstood our proposals. Please watch the video “Do banks create money or just credit?” and read the article Will there be enough credit in the Positive Money system?

    • Mira Tekelova

      You seem to have misunderstood our proposals. Please watch the video “Do banks create money or just credit?” and read the article Will there be enough credit in the Positive Money system?

      • db1

        Mira, I have read them throughly and they are medieval nonsense. John Russels post below does a good job of explaining the impact on credit. Before you say it, I know that there is provision in your proposals for lending but the bottom line is it will either substantially reduce credit OR you will end up with the same amount of lending and therefore the same ammount of RISK as you do today. Your ideas around accounting treatments so that this lending does not count as money creation or debt are laughable sleight of hand and do not change the reality of what is happening. Your proposals would end free banking in the UK, and make it virtually impossible for people to get a mortgage or loan to start a business.

        • GWHodgson

          Brave words, and easily spoken from a cloak of anonymity. What evidence supports your assertions, what research, what authority?

          • GWHodgson

            The above response to db1 was an unworthy outburst which I regret. The point is, we have never claimed that debt will be abolished, and we certainly wouldn’t think of abolishing credit. Human society runs on credit.

            We make two fundamental points, Firstly, that having allowed bank deposit liabilities to take over as the core of the payments system has delivered the whole economy hostage to banking system liquidity, and secondly that the expansion and the contraction of bank deposits, the means of payment, as bank loans are extended and repaid, builds in systemic instability. Both risks are totally unnecessary and are easily (and for the most part imperceptibly) avoided.

            Bank of England figures show that over every 12 month period for the last fifteen years the repayment of mortgages and consumer borrowing has used up between 25% and 50% of all household deposits. For money to remain available at least that amount has to be borrowed back again. It is that structural dependence on debt that we decry.

        • Laughing_Gnome

          Indeed, money lent would be at risk to an optional degree and priced accordingly. Presently the risk is borne by the FSA and ultimately the taxpayer. Also private lenders would have a choice in wether they wished to support business or asset bubbles. The present system is not spectacularly successful in funding small business.

      • Greenbacker84

        Mira,
        Banks do not create money, nor is it thin air.
        They first launder (steal) our promissory notes (between each other) publish the evidence and falsify debt to themselves (while charging interest.)
        Why wont Positive Money address this? Why do they the very root of our money (promissory notes) and interest?

    • Michael

      “lending your mate a fiver” doesn’t create money

  • John Russell

    If you want to go there I wouldn’t start from here.

    By implication you propose going from a system of fractional reserve banking where bank’s liquid reserves (cash and deposits which aren’t lent out) are say around 3%+ of assets (typically loans, i.e. credit or debt) to a 100% reserve ratio.

    This ratio is already under the control of the UK monetary authorities – Bank of England now, FSA during the crisis. In fact the FSA increased minimum capital requirements with the aim of strengthening banks balance sheets, but with the effect of forcing banks to reduce their lending.

    Nevertheless, if the Bank of England wanted to increase the reserve ratio it could do it. At the 100% level you propose, there would be no lending and no borrowing. Banks would keep cash deposits in their vaults, and the UK would in effect run a cash economy.

    Whilst this would cut the banks down to size, it would remove all funding from UK businesses and consumers. The ensuing depression as the money supply collapsed to 1/30th of its former size would make the US Great Depression look like a picnic. Businesses would close as their loans were called in or fell due; employees would lose their jobs in vast numbers. And the value of UK assets would fall until enough foreigners were willing to buy them.

    But it seems you would kill the patient to treat the disease.

    If you want to look harder at what’s really happening – althought the banks’ lending is the instrument of money creation, they don’t control it. The Bank of England does. The credit bubble arose – with excessive asset prices and all the rest of it – because central bankers – Alan Grenspan and Mervyn King – allowed excessive growth of the money supply, refusing to consider the level of asset prices, as long as inflation of goods and services stayed low.

    I didn’t hear Mark Carney say anything about asset prices and monetary policy, but if you want to avoid future asset bubbles and crises, that is where to look.

    • GWHodgson

      The money supply would not collapse to 1/30th of its present size. It would be fixed at its present size by the monetisation of sight deposits and reserves and be subject thereafter to controlled expansion. I agree that the failure to monitor asset prices was a dereliction, as both Steve Keen and Richard Werner attest, but even if the regulatory authorities found ways of managing asset prices, consumer prices and economic activity simultaneously our economy would still be at the mercy of precarious bank liquidity.

      • GWHodgson

        John Russell said:

        By implication you propose going from a system of fractional reserve banking where bank’s liquid reserves (cash and deposits which aren’t lent out) are say around 3%+ of assets (typically loans, i.e. credit or debt) to a 100% reserve ratio.

        No. It is true that we have indeed referred to our proposals using the language of full reserve banking but this has proved an unfortunate choice of words which we are now trying to avoid. Full reserve banking requires banks to hold payment settlement assets equal to 100% of their payment settlement (demand deposit) liabilities towards their account holders. In our system banks would have no payment settlement liabilities towards their account holders. They would instead have access to the payments settlement assets (central bank money) of their customers so that payments would be settled using the customers’ own assets. But the banks would have no demand deposit liabilities and no reserve assets. They would instead hold their own payments assets purely for settling the payments they incur on their own behalf.

  • timsahyiyen

    A great man lived in Turkey last century. He said “The reason behind most of the social problems is the system created by the bankers, which battles labor with the capital, and uses combined interest to maintain this battle. They increased their capitals by deception and misleading and let the rich feed on the bloods of the poor.”

    His solution to the problem was 2 simple things:
    1. Banning Usury
    2. Collecting Tax Based on Wealth, not Income

    These are in fact main the principles of economics in main religions..

    I couldn’t understand it earlier when he said “The solution to ALL SOCIAL PROBLEMS is two things. Banning usury and collecting tax based on wealth.” I could understand if he said ‘solution to financial problems’ but ‘all social problems’?

    After the 2009 crisis, it seems much more logical.

    Think about it. The capital won’t grow where it stands, but instead shrinks. So the capital owners should invest or let their money diminish each year. And as there is no interest, they should invest in actual things and not deposit the money to financial playgrounds. They also can’t give the money to consumers, but instead give the money to producers.

    I am an engineer and no expert economist, but I can feel that this is better than the current system.

  • David

    Great website addressing many key issues in our political/bank money system.
    There is one critical element missing. Neither the banks, central banks nor governments actually create money. You touch on this briefly in your last video. Money is actually created/destroyed and can only be created/destroyed by individuals buying or selling goods and services.
    Our current political/bank money system is simply a mechanism that enables the government and the banking system to authorise, encourage or prevent you as an individual creating money through your own economic activity. It is the ultimate control mechanism. The real jaw dropping irony is that we imprison ourselves with this system – there is no jailor.
    Unfortunately I suspect therefore that your prospoed solution may be flawed as it is impossible for any central body, independent or otherwise, to actually create money. The power rests with the individual. It is also impossible to create money without creating a debt or a ‘promise to pay’, but in this context this is not a bad thing. It is a simple requirement of split barter. It is hard to exchange value for value today, much easier to exchange value today for a promise to deliver equivalent value tomorrow.
    In theory the money system is very easily resolved and the economic (and democratic) benefit to all from doing so would be enormous. However, in practice I suspect the old system is so well ingrained in collective thinking, culture, education, regulation etc that it may well need to collapse before the new can emerge. We must remember that the people with the real power to change it are the very same people with an overwhelming interest in the status quo and they will do almost anything to keep it.
    That said we are developing a new free enterprise money system called the Exchange, and we are not the only ones to be working on similar schemes around the world.
    The hope is that when the old system fails (as it has begun to do) then there will be viable alternatives available to prevent economic collapse.
    Good luck with your endeavours.

    • GWHodgson

      David said:

      … it is impossible for any central body, independent or otherwise, to actually create money. … It is also impossible to create money without creating a debt or a ‘promise to pay’, but in this context this is not a bad thing.

      Money can only be created and serve as money in a society where everyone promises – not to pay – but to sell. In other words, if people are not prepared unconditionally to make their goods and services available for sale, then money cannot function. It is the commitment of everyone, or at least of a substantial and significant proportion of the population, that they will conserve and promote the principles of monetary relations that make money work. Given that commitment, then money becomes unquestionably an asset of its holder and, having no material existence and therefore no intrinsic value of its own, it must therefore also feature as a liability elsewhere.

      But not all liabilities are debts. Some liabilities are indeed obligations to make payments to others – debts. But other liabilities are obligations to have regard for the beneficial interests of others – equity. Equity reflects a duty of care, not an obligation to pay. A homeowner has no equity in his home if he allows it to become derelict and pollutes the land on which it stands. Shareholders have no equity in their company if the directors allow the assets to waste away. Money can be created by debt, but our position is that it can also be created as equity.

      • David

        Yes, I see your point.
        As you say, money is an obligation on the community to unconditionally make their goods and services available for sale on demand.
        Personally I would not call money an asset of it’s holder, this implies that it has tangible worth that can be stockpiled. That in turn requires equal and oposite debt’s to build up elsewhere. Effectively you end up with a blockage in the monetary system as a result.
        Money is just a record of the balance of transactions. Ideally it should remain in existence only for as long as necessary to facilitate efficient exchange of value.
        The obligation is therefore not only on individuals to sell their services on demand, but also to buy an equivalent amount from the community. This does not necessarily mean consume excessively as you can buy assets, invest in enterprises, lend to others etc. The point I am trying (poorly) to make is that you can’t have a net positive balance of money. For every positive there is a negative somewhere.
        A money system that distorts this truth is not helpful and detracts from the real purpose, which is how a community can prosper. That is solely dependent on the sum contribution of each individual/group of individuals.
        The primary goal of any monetary system must therefore be to stimulate, encorage and empower individuals/groups to contribute to their maximum potential.

        • GWHodgson

          No, I said commitment, not obligation. True, if you’ve committed to something then you hold an obligation to yourself to carry it out, but I do not believe that anybody is obligated to sell their goods or services. Compelled is a different matter. People in a market economy simply can’t survive unless they accede to the demands of the market. In a market economy nobody owns enough of all of the things that are necessary to make themselves self-sufficient so as to be able to ignore the market. But money works because people commit to making it work, even if only by their acquiescence. They enter into binding contracts. Overwhelmingly, they act in good faith. Instinctively, they acknowledge property rights.

          But I agree. The commitment to sell must include a commitment to buy, quite apart from the necessity to buy. Things simply stop working if people refuse to buy more than they must for the sake of survival, whilst continuing to earn more than they need to cover their expenditure. Internationally, this is the problem with those exporting countries who run a persistent surplus.

          So perhaps the conclusion should be that, for all who commit to a market economy, in order to be consistent with their commitment those who sell, and thereby capture the means of commerce, are obligated to buy with the proceeds of their sales, and those who buy, and therefore enjoy the benefits of the goods and services made available for sale, are obligated to originate and make available for sale further goods and services (or, in the case of those who are unable to produce for market on account of age, incapacity or non-market responsibilities, arrange to be credited with having done so).

          But a monetary system alone cannot impose these obligations. They have to be enforced on top of money by a system, a superstructure if you will (a word I find singularly appropriate in spite of its Marxist connotations), of social and political sanctions:- abhorrence of the hoarder, ridicule of the miser, tariffs against the dumper (NOTE – none of this purports to represent Positive Money policy. These are my extrapolations from the logic of money).

          Should money be an asset? The way things stand, it has to be. If somebody has something to sell that can raise them money then that thing is, by definition, an asset. If they swap it for something else that they can sell, then that other thing is also an asset. If they sell it, then the money they receive (which they could use to buy something else that they can sell) must also be an asset. Does an asset imply a balancing debt? No. Because, as I said earlier, equity – the obligation to respect someone else’s beneficial interest – equally balances an asset.

          But does money need to be an asset? Does it need to be a place-holder for something of value given away? Catherine Ryan Hyde’s novel “Pay it Forward” suggests not. The one who gives away the thing of value could also give with it the obligation to do likewise. Money, the obligation riding with the gift, would then be a liability – again, a liability in equity rather than in debt, since there is no individually identifiable beneficiary of the obligation, just as with money as asset there is no individually identifiable person who is obligated to provide the appropriate goods or services.

          A conventional monetary system works because the money itself has extrinsic value (at the least), which recipients want to retain. A “pay-it-forward” money system would need a totally different support and enforcement infrastructure, and its own social superstructure, to ensure that those who received it passed it on with value, rather than simply throwing it away (who wants an obligation?).

          • David

            Thank you for your detailed reply. I don’t think we are that far apart in thinking.

            My only contention is that I do believe that the monetary system, if properly structured, can indeed impose (or systemically encourage) the necessary obligations on the participants.

            Ironically the greater the central control, the lesser the effectiveness for the ordinary person. But I am sure we differ on this point. Thanks again.

    • Greenbacker84

      David,
      Are you familiar with Mathematically Perfected Economy?
      Its true debtors/obligors actually create money backed by their labour/production.
      We only need to address creditworthiness (how much can they afford to issue?) and an agreed schedule of payments (to retire principal alone)and a common national publisher to record the issuance and payment schedule. Little more than software is needed, banks are just glorified publishers stealing our promissory contracts, falsifying debt to themselves and charging interest (causing price inflation and volumetric deflation).
      Positive Money so far refuse to address this basic facts.
      There ‘solution’ would strip us of our natural right to issue promissory obligations and empower the bankers with a ‘full reserve’ system wherby we are still forced to ‘borrow’ our contracts AND pay interest. In my humble opinion its text controlled opposition.

      • David

        I’m not specifically familiar with Mathematically Perfected Economy although a quick look on their website suggests they are coming from a similar school of thought. Your comments about what is really needed follow naturally. Unfortunately, what is theoretically simple is hard in practice, largely due to cultural barriers.
        The main problem is that virtually our entire economic knowledge is based on a theory of money that is totally false.
        This misunderstanding stems from the practical reality of how and why money came into being in the first place (split barter using precious metals, leading to safe keeping in banks, promissory notes, government standardisation, coinage, regulation etc etc).
        However, this historical evolution clouds the pure simplicity of what money is and does and its power to transform prosperity of humankind.
        Unfortunately, until mainstream economists start to question the truth about money rather than simply accepting the collectively adopted wisdom, then little is likely to change.
        The Bank of England is packed full of economists who actually believe they can press a button on a computer and create money (in it purest form). Governments are surrounded by advisers preaching Keynesian economics, all of which is brilliant so long as you subscribe to the classical theory of money.
        As soon as you realise that the classical theory of money is flawed, the solutions to todays problems start to become obvious.
        But it took many hundreds of years for scientists to accept the world was not flat, nor the centre of the universe despite the overwhelming evidence, that is group think for you.
        The money debate has actually been raging for well over a hundred years already, so I’m hopeful the penny will begin to drop in the next hundred or so.

        • Greenbacker84

          One can only hope so. W eve had hundreds of years of controlled inflation and deflation by the money masters (banks) laundering our promissory contracts into their possession.
          The truth is they never lent us a penny, fraud nullifies contracts (they give up no equal consideration to the obligor in any loan).
          I’d really ask you to look further into MPE.
          I started as an Austrian gold bug, moved into the Bill Still Greenbacker camp. Now I recognize there is no loan, we the people as obligors are the true source of new money and only have the need to retire/pay it at an obligatory schedule of payments.

          Mike Montagne created the MPE thesis in 1968(!) So far its the most plagiarized online document I’ve found.
          I kid you not, not one single ‘truther’ on talk radio youtube will address this topic.
          That includes Alex Jones, Max Keiser, Ron Paul,Gerald Celente and sadly even Bill Still himself.
          All either continue to peddle scarce metals (owned by bankers and imposed interest) or ‘national’ money and a full reserve lending which again leaves all the money in the banks (and compound interest).
          Neither solution (nor Positive Money) address the theft of our promissory contracts by pretend lenders (so called banks) and the terminal implication of compound interest on the money supply (price inflation and volumetric deflation).

          • David

            I will look into MPE, thanks. You might also find the works of E C Riegel interesting (from the 40′s) and there is plenty of associated literature out their from highly respected minds.
            But ask 20 central bankers the question, what is money? and you will get 20 different answers. So much to be done in this field.

  • Joe Doe

    I have an additional system for money creation. Labour can create money. The employer doesn’t pay a worker. Instead, money gets created out of thin air by a worker doing work. The government sets wages and salaries for each occupation. Labour is a money source, and tax is a money sink, i.e. a portion of tax will take money out of existence. If there ever is a system like this, regulation is necessary. Fraud detection and prevention is necessary. The suggestions provided by an economist named Steve Keen are also necessary to stop asset price bubbles. Look him up on the web.

    • Communist

      Isn’t this essentially communism?

  • MH

    1. Money should only be created through a democratic and
    transparent body working in the public interest.

    I don’t see how the MCC is any different
    from a central bank? How do you prevent them printing too much money either as
    pressure from the government or through corruption and bribery? How do you
    prevent them pursuing their own agenda holding governments and people hostage?

    2.
    Money should be created free of debt

    If the state creates the money – who is
    that then? – the government or the MCC? And how much money is made? How is the
    money spent into society and who controls that? Aren’t we back at today’s Central
    Bank and Government system?

    Another thing there are always more people
    wanting a mortgage than people having savings to lend to mortgages. In addition some money needs to be created in
    the banking sector to account for (represent) new assets being made (new
    housing). Simply trying to shift money from a savings account doesn’t work.

    3.
    Money should be created free of debt

    Money spent into the real economy? I don’t
    see how that is defined? Who’s to say the government of tomorrow is so much smarter
    than the government of today?

    Another thing if money is just handed out to
    the citizens where is then the incentive to work and contribute constructively to
    society? If I own a textile mill or a tractor factory why should I be the lucky
    one to get money from the government while other businesses struggle in the
    free market?

    4. Banks should not be allowed to create money

    I agree in principle. Just how to go about
    this is a bit blurred without having a state bank. Centralizing the financial sector
    under government control somehow doesn’t seem that appetizing to me (I get
    associations to a communist totalitarian society).

    I have seen other arguments from the British
    constitution group and Ron Paul in the US. My personal view is to more radically
    change the money mechanics in society by having assets/commodities and services
    backed currency – in effect each local community and even individuals should be
    allowed to create money (I owe you). However how this is implemented in
    practise is another headache.

    • David

      MH, you are right in all your observations. These proposals are flawed and really not that different from todays setup, just different players.
      The main problem here is that very few people indeed understand what money actually is. For a start you can throw away the economic textbooks that define money as a store of value and medium of exchange. Both statements are totally false. Gold is not money, nor bitcoins, nor indeed the paper notes we hold in our hands. Certainly the numbers held on the computers of banks and central banks are not money, as the PM team have nicely demonstrated.
      The Positive Money team really need to get back to basics on this and I would recommend the works of E.C. Riegel as an essential first step to properly understand money, despite being written in the 40′s.
      Money has only one purpose and that is to enable barter or the exchange of goods and services to be split into two parts. Fundamentally it can only ever arise through private enterprise. In otherwords it is bound to an individual’s ability to deliver economic value to others.
      The notion that Governments, central banks or banks can have anything to do with it is really a nonsense. Except, of course, to the extent that these bodies control the people.
      The notion that you can only have ‘positive’ money is also totally flawed.

      • GWHodgson

        David said:
        Money has only one purpose and that is to enable barter or the exchange of goods and services to be split into two parts. Fundamentally it can only ever arise through private enterprise. In otherwords it is bound to an individual’s ability to deliver economic value to others.

        The notion that Governments, central banks or banks can have anything to do with it is really a nonsense.

        Barter is the simultaneous exchange between two parties of commodities assessed as of equivalent value. Barter is split into two parts by credit. The exchange is no longer simultaneous, but there is an obligation on the party receiving commodity value to complete the exchange in due course. Money disavows that obligation. The process of payment does not complete the barter but releases the payer from any obligation to complete it, because the recipient of payment, the contributor of commodity value to the deal, trusts that someone else will make equivalent commodity value available under the same terms, ie for payment. It is the function of government through the institutions of the state to establish and maintain the conditions under which that trust prevails. That is why government, the managment of state institutions, has a central role in the conduct of monetary relations.

        • David

          Graham, you illustrate well why governments and state institutions can’t actually create money, all they can do is ‘maintain conditions underwhich that trust [within a community of producers and consumers] with prevail’.

          (Although, running up vast debts and unimaginable unfunded pension liabilities, and then flooding the economy with montetary stimulus would hardly be the recipe I would recommend for maintaining trust in our monetary system.)

          I agree that there is a significant role for the state to play, but you seem to be suggesting that one individual cannot enter into an exchange agreement with another individual or with a community of individuals without the direct involvement/control of government and state institutions?

          I certainly hope that is not the case. (except to collect taxes and uphold the law)

          After all these allmighty state institutions are merely representative of the will of the people, run by a subset of the people. Things are going very wrong when the tail begins to wag the dog.

          • GWHodgson

            No. I believe it is a function of government, or of the governor of a sovereign monetary economy (and who knows, it could be Walmart), to provide the means of payment. That is to say, the means by which individuals transacting with each other can agree to disavow the obligation on the recipient of value in the transaction to reciprocate value to the provider of value in the transaction through the profer by the recipient, and the acceptance by the provider, of the means of payment.

            I believe that the state is a far more appropriate provider of the means of payment than a private company engaged in competition with others because, in a market economy composed of multiple independently operating enterprises and individuals, the means of payment has to exchange at par. People will not accept a situation where what they have to pay depends on whose ATM they got their cash from. An economy of multiple monetary authorities is an economy of multiple currencies. And economies go multi-currency when they’ve failed. Stable economies require a monopolistic means of payment. And monopolies have to be adminstered by the state.

            On the role of government in an economy of freely transacting individuals and enterprises, I can only quote Raghuram Rajan, now the hawkish governor of the Reserve Bank of India. To set the picture, in the Afterword of the paperback edition of his awarding winning book “Fault Lines” he says: “After all, I am a Chicago economist; and yet here I am arguing that some governments need to strengthen their social safety nets if they want to move away from excessive policy activism and serial crises.”

            Rajan’s view is:

            “In a democracy, the government (or central bank) simply cannot allow ordinary people to suffer collateral damage as the harsh logic of the market is allowed to play out.”

            That “harsh logic” includes the valuation of any private monetary system.

          • David

            I totally agree the state should run the monetary system.

            I only disagree as to its form.

            It would be a eureka moment for the world if governments and central banks recognised that their job is not to control the supply of money, but to create a free monetary system that promotes enterprise and prosperity for all.

            Oddly enough our monetary system has been run by private enterprises, licensed by the state for a long time. I do not advocate this and agree that it cannot be run by competing private companies.

            However, I do believe that in the absence of an adequate state organised monetary system, then a mutual monetary system operating and owned in the mutual interests of its members is a pretty decent alternative. Perhaps the state will eventually catch on.

            I have great respect for the work the PM team is trying to do, I just happen to believe they have come to the wrong conclusions. Happy to agree to disagree and wish you all best. The momentum for change is building and I suspect lots of variants on the theme will get tried around the world in the coming years – so we will see which works best.

  • LindaG

    I wasn’t sure where to put this comment (and question), but this looks like an active and current spot on the site, so I’ll try here (also posted elsewhere on the site, but after posting, I thought it might be better to seek out a more active spot).

    ~~~~

    I’m from the U.S., and first of all, I want to say that your “Banking 101″ video series is the best, by far, that I’ve come across since I started trying to learn more about these things as a layperson, starting about 5 years ago.

    I had been learning bits and pieces, here and there (some still cloudy to me), through all of that time, but I still didn’t have a clear overall picture.
    You’ve tackled a great many of those “pieces” very well; plus, the series helped me to understand a few really key pieces of the overall puzzle, pieces that I didn’t even know were missing for me. And with that, I’ve made a critical advance in my understanding. Thank you for that.

    I have looked into the American Monetary Institute, which also poses a positive money solution, but I remember not finding what I was looking for there. I can’t quite remember why. And so, when I first came upon your site, and saw “Positive Money,” I was wary.

    But since first finding your site a few days ago, I keep being impressed by what I’m finding. Some day, I’ll sit down and compare your materials and proposals with AMIs, so that perhaps I can better understand why I’m readily appreciating so much of what I’m finding here, and yet, didn’t have the same experience with AMI.

    I do know one thing that made me hesitant about AMI’s positive money proposal came from an interview I saw with Steve Keen, who had been invited as a guest to speak at the AMI conference a couple of years ago. (I did appreciate that they invited him to discuss his criticism of their proposal.) Here’s the interview:

    http://www.youtube.com/watch?v=tLuv5tLUdUA

    I was hoping someone from this site would consider addressing this criticism of AMI’s proposals by Steve Keen.

    Perhaps there are enough differences in your proposal such that Keen’s concerns would be well addressed?
    Thanks for any guidance you can give me.

    Linda

    • GWHodgson

      Steve’s focus is on economic instability arising from the amplification of cycles by speculation. He proposes to moderate this by making company shares and real estate less attractive as speculative investments. There’s no reason why his proposals shouldn’t be pursued in parallel with ours (and AMI’s). There’s no conflict. Our proposals protect the payments system against financial instability and remove the unwarranted privilege that banks enjoy of being underwritten by the taxpayer. They also ensure that banks must be upfront about their investment strategies, just as unit trusts (mutuals) and other investment funds have to be. Our proposals (but not Steve’s) ensure that if (when) banks again decide that they want to follow investment strategies that involve betting against each other about how long they can hold their breath (which was basically what the sub-prime crisis was all about), then they’ll have to find people who will agree to stake them. If they do, when they fall over again then at least they won’t pull the rest of us down with them.

      • LindaG

        Thanks, GW. Yeah, I don’t see any reason why his proposals and Positive Money’s proposals need to be mutually exclusive.

        Plus, as you mention, there’s some important separation in place in your plan, which, at the very least, would allow over-reaching investment houses to fail.

        Finally, for me, the transparency, the accountability throughout the whole of the system, and, perhaps most importantly, a structure that the general public can be well educated about, and fairly easily – all of which, I think, your proposals work hard to include – make this set of solutions particularly attractive to me.

  • David

    Forgive the lengthy post, but once started I couldn’t stop.

    Steve’s criticisms of these proposals are hard to fault, although I am less convinced by his
    proposals. The Positive Money team have done a fantastic job on this site of
    communicating the absurdity of our current money system, but the proposed
    solutions are really no better and some would argue far worse.

    The last thing I want to do is defend bankers or the current system, but compared to these new
    proposals they have one major advantage – the harm that they cause is at least
    self-regulating to an extent. Under the PM teams proposal all this ‘money
    power’ will be concentrated in the hands of a handful of ‘independently elected’
    people. No doubt this will start with the very best of intentions, but the
    power that these few would wield over the people is near absolute and as they
    say absolute power corrupts absolutely.

    What’s more once started it will be near impossible to stop. While well intentioned, to my mind
    this is a very dangerous and quite alarming road to be heading down.

    So what’s the alternative? Well the first thing anyone needs to understand about money is
    that it is not really a ‘thing’ at all – rather it’s a measurement, much like a
    metre or a litre.

    This may seem like splitting hairs, but it is critical. A measurement is inextricably bound to the
    thing it is measuring. A metre on its own is meaningless, but a metre of timber
    is valuable. Metres can’t be created arbitrarily, but they spring into
    existence as soon as you have timber cut into useful lengths.

    Money works in much the same way, but with some unique and powerful characteristics. Money is
    a measure of the net exchange of value between parties within a community. It
    is bound by three things 1) the creation/supply of value, 2) exchange, 3)
    mutual acceptance of the community. All three are also dependent on each other.

    To put this another way: money is created whenever 1) value is created and is 2) provided
    to someone else in exchange for 3) the promise of equivalent value provided
    back to the originator from the community at some stage in the future.
    Similarly it is ‘used up’ when the originator is provided the equivalent value
    from the community.

    Notice that this is a double entry system. The seller gains a positive entry in the ‘value
    delivered’ column, while the buyer has an equal and opposite negative entry.
    The money you have in your bank account is also a liability on the community.
    The linkage between the two should never be broken. At all times the total
    money balance, by definition, must equal zero.

    If the seller only ever sells and never buys from the community then we get an imbalance. The
    seller has a large positive money balance and the community has a large
    negative money balance. This quickly causes a log jam as the community cannot
    keep buying if there is a shortage of people in turn to sell to. It follows
    that for money to work there is an obligation on the seller to buy the
    equivalent amount from the community as soon as possible. And the reciprocal.

    Please notice that at no point is it necessary to have a bank or a government or any other
    independent body issuing money. In fact they can’t. All they can do is influence/control
    1) the creation of value, 2) exchange and 3) mutual acceptance. The only people
    who can actually create money are those individual buyers and sellers and they
    do so on an ‘as needed’ basis. Isn’t that democratic?

    But our current money system is not setup this way. Looking at the numbers the net money
    balance is mysteriously not zero! We have a collective misunderstanding that
    money is a kind of tangible asset of the holder and ignore the inseparable
    liability on the community (and vice versa). We think positive balances are
    good, negative balances are bad and forget the two are inseparable. Our money
    system reinforces this at every stage. You have to have money just to open a
    bank account – where did you get it from in the first place? Think about it.

    Now consider how strange it is to introduce interest into the system. Interest further
    encourages the seller to hold onto their ‘money balance’ and not to use it.
    Similarly interest punishes the buyer for buying. If anything this is the wrong
    way around. It would be better if money actually expired – use it or lose it. That
    does not mean excessive consumption it just means do something useful with it.
    Invest it in a local enterprise, lend it to the state, buy an asset, employ
    some people etc. These all recycle the money.

    Our current monetary system systemically encourages the accumulation of money and penalises
    the use of money. This drives a toxic imbalance that periodically becomes
    unsustainable resetting itself through the default of parties with negative
    balances and the devaluation of those with positive balances.

    This is the true origin of the boom and bust cycle. But notice the true net money balance still
    remains zero and the systemic imbalance between positive and negative balances
    is not rectified, merely reduced. The real price of this ‘bust’ phase is
    therefore not monetary, but the destruction of real value and the contraction
    of a community’s ability to create and distribute value.

    Such a financial crisis might be addressed in a different way. If the problem is a log jam in
    the flow of money, then reducing interest rates should encourage less hording
    of cash and more spending, which it does. If this is not enough then arbitrarily
    increasingly the supply of money may also help in the short term to unblock the
    system. But none of this addresses the underlying cause of the problem.

    Printing money or quantitative easing is a particularly clever trick when the party doing the
    excess buying (running a deficit) is the Government itself. It’s like pretending
    to create more metres of timber by simply halving the size of a metre! You double
    the number of metres but the amount of timber remains unchanged. Of course if
    the Government happens to have a substantial debt with the timber yard, then
    this is great because they have halved their debt overnight!! The poor timber
    yard is left scratching its head wondering what happened.

    This is nothing more than a massive stealth tax. You tax people without them even knowing it –
    clever. Better still – let the Independent Money Issuing Authority do it for
    you. Then the politician has free reign. He can make endless promises and spend
    recklessly but can never be blamed when the music stops. This is one good
    reason why the money issuing power needs to be kept as far away from the
    corridors of power as possible.

    Notice also that if it is the Government doing the excess buying, particularly in the form of
    redistribution of money, then the log jam is actually exacerbated. At the margin
    money is now being spent by parties who by definition are not supplying
    equivalent value to the community and the community cannot therefore buy
    sufficiently from them. Consequently, money is accumulated by parties who are
    now providing excess value to the community. So the imbalance is amplified
    between the positive money balances of net value suppliers and the negative
    money balance of net value users (through Government proxy). This naturally
    leads to an amplification of the boom and bust cycle.

    Of course there are many good reasons why this can be socially desirable and the monetary
    imbalance can be avoided through explicit taxation, but there are substantial
    dangers here also. Breaking the link between value creation and value usage not
    only leads to monetary imbalances but also drives huge social imbalances.
    Ironically the rich get richer and the poor get poorer and no one can work out
    why. Moreover the total amount of value creation in the economy is diminished,
    and with it prosperity generally.

    Lastly consider what happens when people delegate the power to issue money to a central body.
    Firstly, as described, the only way a central body can create ‘real’ money on
    your behalf is to actually do the buying and selling physically for you also.
    This is communism. Ideologically there might be a case for it but in practice
    it has been shown to fail repeatedly. The reason why is not hard to spot. The
    link between value creation and value usage is broken completely. Again this
    actually leads to the rich getting richer and the poor getting poorer (some
    more equal than others, comrade). Power is concentrated in the hands of the few
    and total value creation diminishes drastically until eventually the imbalances
    become unsustainable and the system fails.

    Of course, this is not typically how a central money issuing authority works. Rather than doing
    the buying and selling for you, the issuing authority arbitrarily controls the
    supply of money in the economy. All this means is that the total level of
    buying and selling that can take place in the economy and who can do it is
    being artificially controlled from the centre. The central authority has
    absolute control over the ability of an individual to create value and exchange
    it with the community for equivalent value. How the central authority is
    supposed to determine when, where and how much money is needed is anybody’s
    guess. Unsurprisingly there is a myriad of unintended side effects.

    Seeking freedom from this control, there is a stronger incentive for money to be stockpiled,
    reinforced by interest rates and a perverse belief that it is good to have a
    net positive balance of money (rather than value). The systemic imbalance
    between positive and negative money balances grows and the boom bust cycle
    emerges again. Perhaps less bad than communism but still pretty ineffective?

    In fact the power of the money issuing authority is so great that it rapidly gains absolute
    control of an entire economic and social system. Again this has been
    demonstrated repeatedly throughout history. The Roman’s used money supply to
    maintain control of their remote empire, as did we the British (sorry). In
    America the independent States lost their sovereignty when they allowed US
    money supply to be centrally controlled. Following the emergence of the dollar
    as the world’s reserve currency, the US used money supply to help
    maintain global dominance for 50 years.

    More recently the Eurozone member states have all effectively conceded sovereignty to the centre.
    They may not fully realise it yet but the likes of Greece, Ireland and Spain are
    now fully aware of the true cost of losing their money power. It is interesting
    looking back that one of the motivations was to dislodge the dollar as the only
    global reserve currency and thereby wrestle power back from the US. Of course,
    the Chinese are busy doing exactly the same thing right now.

    The issue at stake here is not really about greedy bankers (boo hiss) or inefficient
    markets, it is about control and power – in fact it is about freedom itself.

    So what’s the answer? We can break free of all this by taking back our individual
    money power. (Ironically we never really lost it we just thought we needed
    permission to use it.) All that is really necessary is an effective central
    accounting system, some basic rules, contract law, and the mutual agreement of
    members. Dare I say it is probably best run by the state? What’s not required?
    Central banks, banks, central arbitrary issue of money, interest, monetary
    inflation, global power struggles, arms races, war … just free enterprising
    people creating and exchanging value.

  • LindaG

    I think what makes me the most uncomfortable from the Positive Money proposal is the proposal for how to deal with long term lending, which is what a lot of businesses will need for capital expenses, as well as families wishing to buy a home.

    The proposal is a series of short-term loans. The initial funding would occur from amassing the funds of a lot of current short term investment depositors. That part I get; that part comes from existing investment funds.

    But after that, after the first 6 months to a year, the bank would need to pay current obligations with assumed future funds, and it has to do that every 6 months to a year (or so – whatever the average time deposit would be) for the next 30 years (using the example of a thirty year mortgage).

    What if the flow of future funds doesn’t match at any one of those intervals (and for any number of similarly structured long-term loans)? Surely, some mismatch is bound to happen, which will at times be worse than other times. Does that mean turning to a money market? What about to the central bank for an injection of liquidity with the govt’s newly created funds in order to take care of existing payment obligations?
    That’s precarious territory, not all that different than what we currently have in place, it seems to me – significant and ongoing obligations to pay with a strictly presumed future flow of funds. How can a bank make accurate projections of cash inflows a year in advance, much less for every six months to a year for 10 or 30 years out, which it would have to do upon making each long-term loan?

    ~~~~~~~

    For long term loans, and keeping to the notion of making a loan with actual existing and matching funds (in terms of amount and duration of availability), and in keeping with the kind of money creation Positive Money has in mind – as a government function, albeit by an independent body, or branch, of govt. – I would think long-term lending would work better (relative to the suggested alternative) through a govt. agency, which could use a prescribed amount of created funds for such loans (which would still exist upon being payed back, and would be in keeping with inflation monitoring), and wouldn’t depend on obligations to find funding not yet in the banks’ possession, over and over again for 10 or 30 years, etc.

    I would suggest that there be thoughtful rules in place to prevent uncontrolled asset price escalation. But with acceptable rules in place for such lending, and with the separate arm of govt. keeping an eye on overall inflation, which would provide a feedback mechanism (as is the case now within PM’s proposals), I would prefer that kind of set up for long term loans to households and businesses (long term loans that are likely to go beyond the usual scope of term deposits at private banks).
    Linda

  • LindaG

    By the way, here’s a helpful Ted talk having to do with some positive data regarding govt. spending (not necessarily the stodgy, inefficient, far from innovative spender, afterall, something I had become pretty resigned about):

    Mariana Mazzucato: Government — investor, risk-taker, innovator

    http://www.youtube.com/watch?v=3r1IPsldbBg

    • LindaG

      As a follow up, here’s a more thorough interview with Mariana Mazzucato sponsored by INET:

      Mariana Mazzucato: How the State Drives Innovation

      http://www.youtube.com/watch?v=yPvG_fGPvQo

      • LindaG

        And one more video featuring Mariana Mazzucato (last one, I promise). I’m including this (after just viewing it) because she talks here more pointedly about how important a deliberately created framework is for this kind of “entrepreneurial contribution” from government to really work.

        http://www.youtube.com/watch?v=xYi0PTclgwY

    • David

      Thanks for sharing this Linda, I love this description of the role of Government.
      The state does have a critically important role to play, but it must begin with vision, values and inspirational leadership for the national as a whole.
      Of course arbitrarily controlling money supply should not come into it. That it about control and bureaucracy.

      • LindaG

        David,
        I don’t want to take away from your effort in this comment, but I’m afraid that I’m still just learning about this stuff from a layperson’s perspective. And I need to have the kind of communication that I’ve seen so far on the Positive Money’s website… often so well communicated that I can actually say… you know, that’s something right there that makes sense to me the way it’s put, but it also feels uncomfortable to me, and so, I’m not sure about that specific proposal; but this other part… that makes sense to me, and I like that, etc.
        I’m afraid I had trouble “getting” what you were writing about. I couldn’t understand it well enough to agree or disagree. Still, maybe it’s a start, and you could find a way to break it down and work it out along the lines that the PM folks are doing with their ideas.
        This is important stuff, isn’t it? And I think it’s good that people are thinking about it and trying to engage with it.

  • Mans Viedoklis

    Almost everyone is aware about how current monetary system is
    unstable, unfair, not economic at all and very dangerous for every
    country in the world and actually to planet earth it’s self. For those
    who are not aware of current monetary system and how money is created –
    there are plenty of materials to look at – you could start with this one
    – click here.

    But is there any other monetary system out there that could be used
    instead that would create stable harmony between economic growth, social
    stability, state and good welfare for everyone, logical and economical
    processes and of course protect planet earth from pollution? Well, I
    offer you – Green economic – my opinion how to get all that good stuff for every country and every human being.

    I now will describe what should be done to achieve this.

    New global currency

    Every country (or at transition period – those countries that are
    members of Green economy union) should be using only one currency –
    let’s call them „GREENS”. This doesn’t mean that there will be one
    central bank for this union but that every central bank of each country
    will be able to create money – GREENS. It’s not that they will be able
    to create it as much as they like – no.

    The amount of GREENS created, reserved and used by each country
    central bank is calculated and allowed by taking in account of these
    factors:

    How much amount oil, gas and it’s materials (petrochemicals, etc.) are created, reserved, imported, exported, used;

    How much amount of green energy and it’s bio materials are created, reserved, imported, exported, used.

    So the more country is going away from oil & gas (or using it
    less) and is producing green energy and bio materials/services – the
    more money they are allowed to create and have to use for their (and
    others) economy.

    What would be consequences

    1.) There would not be any economic bubbles anymore – because money
    is not created out of thin air – debt. Money would be backed by real
    material resources (green energy and bio materials) that every country
    and everyone needs. It would be also more fair for every union member
    because every country can work to create green energy and bio materials –
    so it would not matter so much (and in time absolutely) does country
    has oil & gas resources or it doesn’t. This means that of course
    there is no need to go on war just for the resources as it’s now.

    2.) Pollution reduction would be significant and in years it would be
    eliminated almost completely. No country would be economically
    interested in pollution by using oil & gas and it’s raw materials –
    because then they would have less money in their economy. So pollution
    reduction and using green energy make your country richer.

    3.) Every country will invest to develop new technology (or use those
    who where kept as secret by oil industry) that would make more effective
    green energy and it’s products/services. This would be major technology
    advancement for all countries in this new monetary union (which should
    be world wide).

    4.) There would be new Banks – as they would not be able to create
    money out of debt – Banks would be only allowed to loan money using
    funds from depositors. So this means that they would have to think how
    to earn more money from projects that creates more money in economy.
    Because as more money is there in economy – the more money banks will
    have from depositors and so more will they have in revenue. This
    eventually means that these new Banks are interested in giving loans and
    financing project that either create green energy or creates products
    from green energy and/or creates bio products/services (as you remember
    than central bank will be allowed to create more money). So Banks would
    be in direct interest and action to speed up green projects which creates
    actual jobs for people and so creates more consumption for green
    products and energy and so country central bank is allowed to create
    more money… and so on and on by spiral up way till we can go to next
    point.

    5.) All created money – GREEN is created by country central bank and
    given to country government to decide where to use it and invest it. So
    as now governments has money they don’t have to tax people. So in time
    as more and more there are GREENS in country economic – at some point
    governments will stop Tax at all, because there will be enough GREENS to
    supply all necessary government services. As almost everyone would be
    rich – everyone could pay for services. Only small amount would be
    necessary to support those that doesn’t have necessary money to buy
    services.

    Is in this great – more technology advancement, more jobs, no taxes
    and more money and more bio products/services and green energy and clean
    earth?

    Summary

    This new monetary system would be stable, logical, economical and
    make everyone much richer and increase people of the world welfare many
    times making this a golden age for humans. It would make us think how to
    spend less resources from the planet and to create re-usable materials
    using green energy. It would remove all the taxes and lower the prices
    just to accumulate more green products so that there would be more money
    to work for more technology advancement.

    Actually it’s very simple – you back the money by what you want the
    world to be working to – either it’s debt, oil and financial bubble or
    it’s something else.

    It’s all possible and after such monetary system implementation no-one will want to go back to this nonsense we have now.

    So – let’s go for this!

    P.S. I do understand that this site is keen on gold & silver – not other options.

  • the.hoarse.whisperer

    I would be interested to hear views on Bitcoin. Fools gold or the future for currency , what’s your view

    • David

      Bitcoin’s have some attributes that are better than the current system. Most notably that supply is not controlled or manipulated by governments. However, the Bitcoin system does not provide a complete monetary system and has major flaws in its construction that become increasingly significant the more successful it becomes as a monetary unit.
      You can think of bitcoins a little bit like virtual-gold. Limited supply means that bitcoin values should keep up with inflation over time. However, in the same way that it would be impossible to run the global economy using gold as the only monetary unit, it would similarly be impossible to use bitcoins – it is just too inflexible and is a poor approximation of the ideal monetary unit.
      If we are going to replace traditional political-currencies then we can do a lot better than bitcoins.

  • Aj

    I watched the above video and it is not the first time this type of proposal was made. You see people are still BLIND, you got to see things from a birds eye perspective, see everything as a whole and not just focus on one aspect. Look at the The Balfour Declaration, UK always had a mysterious connection with zionist Israel, all the funding for war, Billions and Billions of pounds and dollars spent on war in favour of Israel. I suggest people watch David Duke on how he exposes the top leading zionist Bankers. I also suggest people watch John Perkins Confession Of An Economic Hitman and also watch Mike Maloney Gold and Silver.

    Forming a committee will not solve the issue, why? When President J.F Kennedy kept the Dollar under the gold standard, things did not go well for him, when Gaddafi leader of Libya did not want to sell Oil for the Dollar but wanted to sell for GOLD things did not go well for him same with Saddam. Even if you get to a stage where you can create your own money (which i doubt) i.e. electronic money such as bitcoin, you will always have a BANKER mentor you from the shadows.

    How do they do it? Simple, they have a PHD in Deception and they bought POWER. What kind of power? They successfully terminated the use of Gold and Silver and created their Money, and with money they currently own Media, Weapons, Police, Army, Secret agents, IT, Medicine, Lawyers, People like you and me to keep their system alive (city) and so on. You can do your research and try to see pass the smoke and mirrors.

    I am a person of Faith, my research also lead me to go way back, yep that includes holy scriptures. Once upon a time God was the printer of money e.g. Gold and Silver. Then the devil came to corrupt men and whispered ‘you can be a GOD! Become the printer of Money!’

    Solution for people who can see with the internal eye and not just the external i.e. internal eye is your heart, see with your heart. By now we are all aware the bankers are super power giants and we are not, lets us help one another, buy our own lands and farms far away from the cities and create our own jobs and business, live a simple life, have solar energy, bio gas energy etc without us the cities are nothing. People are already doing these kind of projects and living a peaceful life.

    I can be here all day talking, this is a huge topic, this is my opinion and everyone are entitled to their own opinion.

    Kind regards,

    Aj

  • http://www.fija.org/ Max Abramson

    Perhaps you could just poll the voters every year asking them what they believe the current inflation rate is in the economy. By law, enough money would be printed to then keep the inflation rate between 0-2%. Over the course of that year, every natural born mother who had a baby would be given an equal portion of that increase in the money supply, in person, no strings attached.

  • Carlton Newman

    You need to watch this video and begin to understand the difference between money and currency. http://www.youtube.com/watch?v=iFDe5kUUyT0

    • GWHodgson

      The opinions expressed in this video are addressed and refuted elsewhere on this site, and in the books “Where does money come from” and “Modernising Money”. Money does not have to be a store of value, it only has to be a means of payment to enable you to buy a store of value. Money/currency is not created by the money multiplier. That process was dreamed up by academics writing textbooks on economics to stop students having to think too hard about the mechanics of banking.

      • Carlton Newman

        You essentially agree with the points in this video regarding the creation of money out of thin air through loans made by banks. A Committee creating “currency” out of thin air is no different than a bank creating money out of thin air except for the Debt part of the equation. There is no such thing as an incorruptible committee., What you seem to disagree about is the role of “money” as a store of value. Please don’t jump to conclusions but hear me out.

        Let’s get down to basics here. Everything is energy; energy is neither created nor destroyed and that is an attribute of our Creator. All of the Creation is composed of God’s Light (Christ) which is self-luminous. innately intelligent, conscious energy. We are that energy and that energy is us.

        When we expend energy in living our lives, we are expending energy on loan to us from our Creator. We are accountable for every erg of the energy that we expend. The energy of the sun enables all life on the planet to exist. The energy from the fire of the sun is equivalent to the fire of God (Deu 4:24, Hbr 12:29). The Creator is a part of that energy and our identity pattern is stamped upon the energy that we expend so that the Creator can trace the flow of that energy wherever it goes. For good or for ill, the Creator multiplies that energy and returns it to us so that we can learn the effects of our use of that energy. This Cyclic Return of energy is called the Law of Karma of which “sin” is the negative aspect.

        When we expend energy in our labors we must receive in return something of equivalent value for the energy that we have expended in that labor. Gold is recognized as that store of energy as it most directly represents the energy of the sun as it is a precipitate of that sun energy. The less noble metals of silver, nickle and copper allow for the “stepping down” in value of that energy.

        When we hold physical gold in our hands or wear it on our body we receive a “charge” of energy from that substance which stabilizes us mentally, emotionally and physically. A Golden Age Society literally depends of the free contact with gold by all of the people. The debasement of society occurs when gold is no longer in circulation because it has been replaced with something, such as paper, which cannot convey the higher frequencies of energy contained in gold.

        Gold as a medium of exchange maintains the value of the energy we have received from the Creator and expended in our labors. Through it we transfer to others the value of their labor expended in the goods or services we wish to purchase. It is therefore a fair an honorable exchange. The only value of a currency of exchange lies in the value of the
        Light of the Creator that the currency can hold. Paper cannot hold that
        “charge” of energy. The substitution of paper for gold represents a Theft of that value and a debasement of WORTH. The psychological condition of unworthiness pervades the society as people sense that they have been cut off from their true value and cheated out of their inheritance.

        No Committee can “charge” a currency with value. Their currency is just as much a debasement as any other. To think otherwise is folly.

  • Attochron

    Sounds interesting…but suggestion to have government print the money just ties back to the fact that the politicians are all having to grapple with special interests who dominate their voting public. Keep government out of it. And just printing money isn’t the answer. What is the value of money going to be tied to? Gold standard? America’s Oil standard (which Nixon put us on when he abandoned the Gold standard?) Good faith?
    You need a commodity and/or service with a value that is determined by the real world and *already* owned by the majority of citizens so that citizen action can overrule arbitrage by the few. It already exists, it’s right under people’s noses and a model has already been proven in the poorest of countries regarding the method of exchange. Give up? Pick up your cellie/smartphone/pad device, etc…. it’s the very broadband capacity that makes it work. Cheers.

  • Chris

    No more money, please! It will ALWAYS lead to corruption. The best solution is a Resource Based Economy. No more money, no more work (unless you want to), each and everyone on the planet will live abundantly and we’ll save the planet in the process. Let’s make everything free: freeworldcharter.org
    It IS possible with today’s technology and inevitable if we as a species wish to survive. Paradise or Oblivion, it’s your choice ;)

    • Lukas Vyletel

      so, say people who currently work at mines won’t like to work at all anymore… How are people, who WANT TO work gonna work, if they don’t have nothing to work with? This would bring us back to the stone age

  • Paul Johnston

    You’ve got some interesting ideas, but I don’t think your proposals would effectively prevent banks creating money. You say people would have “investment accounts” and that when banks lend these funds, this isn’t creating money, because the investor doesn’t have legal ownership of their money for that period. Compare this to the current setup where people do have legal ownership, but the majority do not withdraw. Either way, that money is “dead” money. And crucially, either way it earns interest, so someone else has to pay that interest. Your idea that “banks can’t create money” is just a semantic change in how you refer to money that is in an investment account.

  • Lukas Vyletel

    so you want government to create money and use them where they see fit… well I can see where this leads to -> corruption and stealing. It’s so easy to steal money, that didn’t previously exist. They are money of nobody, so why should a corrupt politician feel ashamed of taking his portion

×