Beth	
  Stratford	
  |	
  Masaryk	
  University	
  |	
  March	
  2015	
  
¡  What	
  money	
  is,	
  where	
  money	
  comes	
  from	
  
¡  What	
  are	
  the	
  implications	
  of	
  the	
  current	
  
system	
  for	
  environmental	
  sustainability	
  
¡  Critical	
  review	
  of	
  proposals	
  for	
  monetary	
  
reform	
  
Often	
  defined	
  by	
  functions	
  
§  unit	
  of	
  account	
  
§  means	
  of	
  exchange	
  
§  store	
  of	
  value	
  
	
  
Money	
  is	
  a	
  social	
  relationship	
  
§  “An	
  agreement	
  within	
  a	
  community	
  to	
  use	
  
something	
  as	
  a	
  medium	
  of	
  exchange”	
  Bernard	
  Lietar	
  
§  “Money	
  is	
  not	
  metal;	
  it	
  is	
  trust	
  inscribed”	
  Niall	
  
Ferguson	
  
§  What	
  we	
  use	
  as	
  money	
  is	
  a	
  social	
  contract	
  –	
  a	
  
“promise	
  to	
  pay”	
  
	
  
Control	
  of	
  the	
  money	
  supply	
  is	
  a	
  social	
  and	
  
political	
  issue	
  
¡  Conventional	
  accounts	
  see	
  money	
  as	
  a	
  
‘neutral	
  veil’	
  lying	
  over	
  the	
  ‘real’	
  economy	
  of	
  
production	
  and	
  exchange.	
  	
  
¡  Money	
  is	
  largely	
  ignored	
  in	
  economic	
  models	
  
¡  This	
  follows	
  from	
  a	
  view	
  of	
  money	
  as	
  a	
  
convenient	
  alternative	
  to	
  barter	
  
§  In	
  fact,	
  our	
  standard	
  account	
  of	
  monetary	
  history	
  is	
  
precisely	
  backwards.	
  We	
  did	
  not	
  begin	
  with	
  barter,	
  
discover	
  money,	
  and	
  then	
  eventually	
  develop	
  credit	
  
systems.	
  It	
  happened	
  precisely	
  the	
  other	
  way	
  around.	
  
(Greaber,	
  2011,	
  p.	
  40)	
  
§  The	
  reason	
  that	
  economic	
  textbooks	
  now	
  begin	
  with	
  
imaginary	
  villages	
  is	
  because	
  it	
  has	
  been	
  impossible	
  to	
  
talk	
  about	
  real	
  ones.	
  Even	
  some	
  economists	
  have	
  been	
  
forced	
  to	
  admit	
  that	
  Smith's	
  Land	
  of	
  Barter	
  doesn't	
  
really	
  exist.	
  (Greaber,	
  2011,	
  p.	
  43)	
  
§  See	
  Felix	
  Martin	
  
Lending our savings out to businesses and fellow citizens?
Where did this come from in the first place?
“When	
  banks	
  make	
  loans	
  they	
  create	
  
additional	
  deposits	
  for	
  those	
  that	
  have	
  
borrowed”	
   	
  Bank	
  of	
  England	
  (2007)	
  
	
  
“...	
  changes	
  in	
  the	
  money	
  stock	
  primarily	
  
reflect	
  developments	
  in	
  bank	
  lending	
  as	
  new	
  
deposits	
  are	
  created”	
  Bank	
  of	
  England	
  (2007)	
  
	
  
“Each	
  and	
  every	
  time	
  a	
  bank	
  makes	
  a	
  loan,	
  
new	
  bank	
  credit	
  is	
  created	
  –	
  new	
  deposits	
  –	
  
brand	
  new	
  money.”	
   	
  Graham	
  Towers	
  (1939),	
  
former	
  Governor	
  of	
  the	
  central	
  bank	
  of	
  Canada	
  
	
  
“The	
  actual	
  process	
  of	
  money	
  creation	
  takes	
  
place	
  primarily	
  in	
  banks.”	
  Federal	
  Reserve	
  Bank	
  
of	
  Chicago	
  (1961)	
  
	
  
“In	
  the	
  Eurosystem,	
  money	
  is	
  primarily	
  
created	
  through	
  the	
  extension	
  of	
  bank	
  
credit…	
  The	
  commercial	
  banks	
  can	
  create	
  
money	
  themselves.”	
  Bundesbank	
  (2009)	
  
	
  
“Over	
  time…	
  Banknotes	
  and	
  commercial	
  
bank	
  money	
  became	
  fully	
  interchangeable	
  
payment	
  media	
  that	
  customers	
  could	
  use	
  
according	
  to	
  their	
  needs.”	
  European	
  Central	
  Bank	
  
(2000)	
  
	
  
“The	
  Bank	
  supplies	
  base	
  money	
  on	
  demand	
  
at	
  its	
  prevailing	
  interest	
  rate,	
  and	
  broad	
  
money	
  is	
  created	
  by	
  the	
  banking	
  system”	
  
Bank	
  of	
  England	
  (1994)	
  
	
  
Assets	
   Liabilities	
  
Central	
  bank	
  reserves	
  
Bonds	
  &	
  other	
  liquid	
  assets	
  
Derivatives	
  
Customer	
  loans	
  
Gilts	
  
Equity	
  capital	
  
Bonds	
  in	
  issue	
  
Derivatives	
  
Interbank	
  borrowing	
  
Deposits	
  
Interbank	
  lending	
  
This	
  is	
  money	
  
created	
  by	
  
commercial	
  banks	
  
How	
  much	
  they	
  expand	
  (or	
  
contract)	
  depends	
  primarily	
  
on	
  confidence,	
  as	
  well	
  as	
  
regulation.	
  
This	
  is	
  money	
  created	
  
by	
  the	
  Bank	
  of	
  England	
  
They	
  lend	
  it	
  to	
  the	
  commercial	
  
banks	
  in	
  whatever	
  quantities	
  
they	
  need.	
  
Source: Bank of England, Interactive Database, data series LPQAUYM (M4)
LPQVQKT (notes and coins), YWMB43D (Central bank reserves).
(graphic taken from Positive Money)
Increase	
  in	
  bank	
  lending	
  UK	
  1997-­‐	
  2007	
  
(graphic	
  from	
  Positive	
  Money)	
  
1.  Private	
  profit-­‐seeking	
  organisations	
  have	
  a	
  
near-­‐monopoly	
  influence	
  over	
  the	
  scale	
  and	
  
allocation	
  of	
  new	
  purchasing	
  power.	
  	
  
2.  Indebtedness	
  is	
  required	
  to	
  maintain	
  money	
  
supply	
  
1.  Private	
  profit-­‐seeking	
  organisations	
  have	
  a	
  
near-­‐monopoly	
  influence	
  over	
  the	
  scale	
  and	
  
allocation	
  of	
  new	
  purchasing	
  power.	
  	
  
2.  Indebtedness	
  is	
  required	
  to	
  maintain	
  money	
  
supply	
  
3.  Money	
  supply	
  is	
  elastic;	
  Investment	
  no	
  longer	
  
constrained	
  by	
  savings	
  
“The	
  invention	
  of	
  bank	
  money	
  –	
  money	
  that	
  did	
  not	
  depend	
  
on	
  existing	
  economic	
  activity,	
  but	
  created	
  economic	
  activity	
  
–	
  meant	
  that	
  borrowers	
  could	
  end	
  their	
  dependency	
  on	
  
those	
  who	
  were	
  already-­‐rich….	
  [T]o	
  the	
  astonishment	
  and	
  
delight	
  of	
  many,	
  money	
  was	
  no	
  longer	
  a	
  scarce	
  resources.	
  	
  
Once	
  banks	
  are	
  able	
  to	
  create	
  credit,	
  investment	
  is	
  no	
  longer	
  
constrained	
  by	
  saving”	
  (Pettifor,	
  2006:67).	
  
The	
  ‘capitalist	
  engine’	
  cannot	
  be	
  understood	
  at	
  all	
  without	
  
reference	
  this	
  distinctive	
  monetary	
  system	
  (Schumpeter	
  
1994	
  [1954]:318).	
  	
  	
  
	
  
¡  Does	
  increasing	
  an	
  increase	
  in	
  the	
  money	
  
necessarily	
  lead	
  to	
  an	
  increase	
  in	
  economic	
  
activity?	
  
M	
  is	
  the	
  quantity	
  of	
  
money	
  in	
  circulation	
  
V	
  is	
  the	
  velocity	
  of	
  
circulation	
  
P	
  is	
  the	
  price	
  paid	
  for	
  
each	
  ‘good’	
  
Y	
  is	
  the	
  total	
  
quantity	
  of	
  goods	
  
¡  Conventional	
  view:	
  ‘the	
  dominant	
  influence	
  ….of	
  monetary	
  
changes	
  is	
  on	
  prices,	
  rather	
  than	
  output’	
  (Friedman	
  and	
  
Schwarz	
  1982:	
  623)	
  
¡  Others	
  argue	
  that	
  expansion	
  and	
  contraction	
  of	
  money	
  supply	
  
can	
  have	
  a	
  big	
  effect	
  on	
  output.	
  	
  
¡  Growth	
  of	
  money	
  supply	
  is	
  probably	
  a	
  necessary	
  (though	
  
insufficient)	
  condition	
  for	
  growth	
  in	
  output.	
  It	
  depends	
  for	
  
what	
  purpose	
  money	
  is	
  created.	
  
The	
  ‘quantity	
  equation’	
  given	
  by	
  economic	
  textbooks	
  states	
  that	
  
MV	
  =	
  PY	
  
1.  A	
  firm	
  takes	
  a	
  loan	
  to	
  fund	
  productive	
  investment.	
  They	
  hire	
  more	
  
staff	
  and	
  buy	
  new	
  equipment.	
  	
  
2.  A	
  household	
  takes	
  out	
  a	
  loan	
  to	
  fund	
  consumption	
  spending	
  when	
  
money	
  is	
  tight.	
  The	
  firm	
  that	
  gets	
  an	
  unexpected	
  sale	
  as	
  a	
  result	
  of	
  
this	
  uses	
  increased	
  earnings	
  to	
  hire	
  more	
  workers,	
  and	
  invest	
  in	
  new	
  
equipment	
  
3.  Another	
  household	
  takes	
  out	
  a	
  loan	
  to	
  fund	
  consumption	
  spending,	
  
but	
  the	
  firms	
  who	
  get	
  an	
  unexpected	
  increase	
  in	
  sales	
  as	
  a	
  result	
  of	
  
this	
  spending	
  decides	
  to	
  simply	
  to	
  put	
  prices	
  up,	
  instead	
  of	
  increasing	
  
output.	
  	
  
4.  A	
  financial	
  institution	
  takes	
  out	
  a	
  loan	
  to	
  directly	
  speculate	
  on	
  the	
  
price	
  of	
  financial	
  assets.	
  	
  
5.  A	
  person	
  working	
  in	
  real	
  estate	
  takes	
  out	
  a	
  loan	
  to	
  buy	
  three	
  existing	
  
houses,	
  to	
  renovate,	
  and	
  then	
  sell	
  them	
  on	
  at	
  a	
  profit.	
  	
  
On the one hand, [the ready availability of creditmoney]
can have inflationary consequences – where
debt-financed investment and consumer demand are
driven beyond the productive capacity of the
economy. On the other hand, debt inevitably entails
the threat of default and the subsequent
‘disappearance’ of money in a process of debt
deflation. (Ingham: 2008:66).
	
  
Deflation	
  …	
  involves	
  a	
  transference	
  of	
  wealth	
  from	
  the	
  rest	
  of	
  the	
  community	
  
to	
  the	
  rentier	
  class	
  and	
  to	
  all	
  holders	
  of	
  titles	
  to	
  money;	
  just	
  as	
  inflation	
  
involves	
  the	
  opposite.	
  	
  In	
  particular	
  it	
  involves	
  a	
  transference	
  from	
  all	
  
borrowers,	
  that	
  is	
  to	
  say	
  from	
  traders,	
  manufacturers,	
  and	
  farmers,	
  to	
  lenders,	
  
from	
  the	
  active	
  to	
  the	
  inactive.	
  	
  But	
  whilst	
  the	
  oppression	
  of	
  the	
  taxpayer	
  for	
  
the	
  enrichment	
  of	
  the	
  rentier	
  is	
  the	
  chief	
  lasting	
  result,	
  there	
  is	
  another,	
  more	
  
violent,	
  disturbance	
  during	
  the	
  period	
  of	
  transition…	
  Modern	
  business,	
  being	
  
carried	
  on	
  largely	
  with	
  borrowed	
  money,	
  must	
  necessarily	
  be	
  brought	
  to	
  a	
  
stand	
  still	
  by	
  such	
  a	
  process	
  (Keynes,	
  1972:166).	
  
£1! £2! £2! £2!
£1!
If	
  I	
  take	
  out	
  a	
  loan	
  
for	
  £100	
  I	
  only	
  need	
  
to	
  sell	
  50	
  apples	
  to	
  
pay	
  it	
  back!	
  
No	
  one	
  wants	
  my	
  
apples	
  at	
  £2.	
  	
  
I’ll	
  have	
  to	
  drop	
  the	
  
price,	
  and	
  sell	
  more	
  
apples.	
  
“Credit	
  enables	
  us	
  to	
  build	
  up	
  the	
  
present	
  at	
  the	
  expense	
  of	
  the	
  
future.	
  	
  It's	
  founded	
  on	
  the	
  
assumption	
  that	
  our	
  future	
  
resources	
  are	
  bound	
  to	
  be	
  far	
  
more	
  abundant	
  than	
  our	
  present	
  
resources.	
  A	
  host	
  of	
  new	
  and	
  
wonderful	
  opportunities	
  open	
  up	
  
if	
  we	
  can	
  build	
  things	
  in	
  the	
  
present	
  using	
  future	
  income.”	
  
Yuval	
  Noah	
  Harari,	
  2011	
  
	
  
	
  “It	
  is	
  significant	
  that	
  the	
  Sumerian	
  word	
  amargi,	
  the	
  first	
  recorded	
  word	
  
for	
  “freedom”	
  in	
  any	
  known	
  human	
  language,	
  literally	
  means	
  “return	
  to	
  
mother”	
  –	
  since	
  this	
  is	
  what	
  freed	
  debt	
  peons	
  were	
  finally	
  allowed	
  to	
  do.”	
  	
  
Graeber,	
  2011:65	
  
‘Debt	
  peonage	
  continues	
  to	
  be	
  the	
  main	
  principle	
  of	
  recruiting	
  
labor	
  globally:	
  either	
  in	
  the	
  literal	
  sense,	
  in	
  much	
  of	
  East	
  Asia	
  or	
  
Latin	
  America,	
  or	
  in	
  the	
  subjective	
  sense,	
  whereby	
  most	
  of	
  
those	
  working	
  for	
  wages	
  or	
  even	
  salaries	
  feel	
  that	
  they	
  are	
  doing	
  
so	
  primarily	
  to	
  pay	
  off	
  interest-­‐bearing	
  loans.’	
  (Graeber,	
  2011:368).	
  
	
  
	
  
YES!	
  All	
  money	
  systems	
  before	
  1694!	
  
	
  
We	
  tend	
  to	
  think	
  of	
  the	
  monetary	
  system	
  as	
  natural	
  or	
  inevitable.	
  
But	
  our	
  monetary	
  system	
  has	
  “come	
  about	
  by	
  agreement,	
  therefore	
  it	
  is	
  
within	
  our	
  power	
  to	
  change	
  it	
  or	
  render	
  it	
  useless”	
  if	
  we	
  so	
  decide	
  
(Aristotle,	
  350BC,	
  quoted	
  in	
  Graeber,	
  211:298).	
  
	
  
People-­‐Produced	
  (“complementary	
  currency”)	
  
¡ created	
  by	
  people	
  by	
  mutual	
  agreement,	
  eg	
  strings	
  of	
  seashells,	
  Swiss	
  WIR	
  ,	
  LETS	
  
and	
  timebanks.	
  
Government-­‐Produced	
  
¡ spent	
  into	
  circulation	
  by	
  state	
  and	
  collected	
  as	
  tax	
  
¡ danger	
  of	
  ‘sovereign	
  abuse’	
  and	
  hyperinflation	
  
	
  
community	
  
building	
  
alternative	
  
	
  values	
  
alternative	
  
livelihoods	
  
eco-­‐	
  
localization	
  	
  
	
  
"There	
  is	
  no	
  good	
  reason	
  for	
  a	
  community	
  to	
  be	
  without	
  money.	
  	
  
To	
  be	
  short	
  of	
  money	
  when	
  there's	
  work	
  to	
  get	
  done	
  is	
  like	
  not	
  
having	
  enough	
  inches	
  to	
  build	
  a	
  house.	
  	
  
We	
  have	
  the	
  materials,	
  the	
  tools,	
  the	
  space,	
  the	
  time,	
  the	
  skills	
  and	
  the	
  
intent	
  to	
  build	
  …	
  but	
  we	
  have	
  no	
  inches	
  today?	
  Why	
  be	
  short	
  of	
  inches?	
  
Why	
  be	
  short	
  of	
  money?”	
  	
  (Michael	
  Linton,	
  LETS	
  creator)	
  
¡  Membership	
  clubs	
  using	
  currency	
  created	
  at	
  
the	
  moment	
  of	
  transaction	
  as	
  a	
  credit	
  for	
  the	
  
seller	
  of	
  a	
  good	
  or	
  a	
  service,	
  and	
  a	
  debit	
  for	
  the	
  
buyer.	
  
¡  All	
  participants	
  start	
  their	
  accounts	
  at	
  zero,	
  and	
  
can	
  spend	
  before	
  they	
  have	
  earned	
  any	
  
currency.	
  
¡  Individual	
  account	
  balances	
  are	
  disclosed	
  to	
  
deter	
  abuse,	
  and	
  some	
  apply	
  debit	
  limits,	
  but	
  
no	
  interest	
  is	
  charged	
  on	
  negative	
  balances	
  
¡  formalizes	
  the	
  exchange	
  of	
  personal	
  services	
  by	
  
means	
  of	
  a	
  time-­‐denominated	
  currency	
  that	
  
assigns	
  a	
  uniform	
  value	
  to	
  everyone’s	
  labour	
  time	
  
§  (i.e.	
  one	
  hour	
  of	
  time	
  is	
  worth	
  one	
  Time	
  Credit/Dollar,	
  
regardless	
  of	
  the	
  service	
  provided	
  in	
  one	
  hour	
  or	
  how	
  much	
  
skill	
  is	
  required	
  to	
  perform	
  the	
  task	
  during	
  that	
  hour).	
  
¡  Different	
  forms	
  	
  
§  Person	
  to	
  person	
  	
  
§  Person	
  to	
  Agency	
  
§  Agency	
  to	
  Agency	
  
¡  Associated	
  with	
  idea	
  of	
  ‘co-­‐production’	
  which	
  aims	
  
to	
  make	
  social	
  welfare	
  services	
  more	
  effective	
  and	
  
humane	
  through	
  a	
  participatory	
  approach	
  	
  
¡  Time	
  Banks	
  have	
  been	
  established	
  in	
  34	
  countries,	
  
with	
  at	
  least	
  300	
  Time	
  Banks	
  established	
  in	
  40	
  US	
  
states	
  and	
  300	
  throughout	
  the	
  United	
  Kingdom	
  
¡  This	
  is	
  the	
  most	
  straightforward	
  of	
  local	
  currencies	
  
–	
  a	
  printed	
  piece	
  of	
  paper	
  allowed	
  to	
  circulate	
  
freely	
  in	
  a	
  locality	
  with	
  no	
  backing	
  from	
  legal	
  
tender	
  
¡  Best	
  known	
  example	
  is	
  Ithica	
  HOURS,	
  created	
  in	
  
1991,	
  in	
  context	
  of	
  recession.	
  	
  
§  (LETS	
  scheme	
  had	
  failed	
  a	
  few	
  years	
  earlier,	
  and	
  the	
  
objective	
  was	
  to	
  estbalish	
  “a	
  more	
  fluid	
  and	
  inclusive	
  
medium	
  of	
  exchange”.)	
  
§  Although	
  the	
  currency	
  was	
  called	
  ‘hours’,	
  the	
  exact	
  rate	
  of	
  
exchange	
  for	
  any	
  given	
  transaction	
  was	
  to	
  be	
  decided	
  by	
  the	
  
parties	
  themselves	
  
§  Support	
  from	
  a	
  credit	
  union,	
  through	
  which	
  one	
  of	
  the	
  
initiators	
  obtained	
  a	
  grant	
  to	
  work	
  as	
  a	
  full-­‐time	
  developer	
  
§  Centrally	
  controlled	
  issuance,	
  high	
  quality	
  design	
  
§  Businesses	
  signed	
  up	
  to	
  accept	
  a	
  limited	
  number	
  of	
  HOURS	
  
in	
  return	
  for	
  free	
  advertising	
  in	
  the	
  newspaper	
  produced	
  by	
  
Glover	
  
¡  Most	
  recent	
  type.	
  Less	
  of	
  a	
  radical	
  break	
  with	
  the	
  
official	
  monetary	
  system,	
  because	
  the	
  norm	
  is	
  for	
  full	
  
backing	
  with	
  main	
  currency	
  
§  i.e.	
  One	
  Brixton	
  pound	
  costs	
  one	
  Pound	
  Sterling,	
  so	
  issuance	
  
does	
  not	
  generate	
  additional	
  purchasing	
  power,	
  only	
  subjects	
  
the	
  existing	
  stock	
  to	
  more	
  spatial	
  friction.	
  	
  
¡  Designed	
  for	
  businesses	
  appeal.	
  Principally	
  aimed	
  at	
  
localising	
  economy.	
  
¡  German	
  Chiemgauer	
  has	
  c.	
  600	
  business	
  members	
  
and	
  an	
  annual	
  turnover	
  of	
  6.2	
  million	
  Euros	
  in	
  2011	
  
(Gelleri,	
  2012).	
  	
  
§  A	
  demurrage	
  charge	
  is	
  meant	
  to	
  deter	
  hoarding	
  and	
  speed	
  up	
  
the	
  circulation	
  (but	
  does	
  this	
  drive	
  additional	
  consumption?)	
  	
  
¡  In	
  Bristol	
  UK,	
  the	
  local	
  government	
  has	
  agreed	
  to	
  
accept	
  Bristol	
  Pounds	
  in	
  payment	
  of	
  council	
  taxes	
  
from	
  businesses	
  in	
  the	
  city	
  (Brown	
  and	
  Kuchler,	
  2012)	
  	
  
¡  “This	
  is	
  not	
  to	
  belittle	
  the	
  usefulness	
  of	
  non-­‐	
  
convertible	
  paper	
  currencies	
  for	
  coping	
  with	
  
situations	
  where	
  the	
  formal	
  economy	
  and	
  the	
  
state	
  withdraws	
  from	
  covering	
  the	
  
consumption	
  needs	
  of	
  the	
  population.	
  Coping	
  
with	
  chaotic,	
  involuntary	
  degrowth,	
  as	
  non-­‐
convertible	
  barter	
  currencies	
  helped	
  millions	
  
of	
  Argentineans	
  do	
  in	
  2001-­‐02,	
  is	
  nevertheless	
  
different	
  from	
  advancing	
  the	
  project	
  of	
  
voluntary	
  degrowth…”	
  (Dittmer,	
  2012)	
  
¡  PROBLEM	
  
§  Great	
  Depression,	
  1500	
  local	
  unemployed	
  
¡  SOLUTION	
  
§  issued	
  a	
  demurrage	
  currency	
  known	
  as	
  labour	
  
certificates	
  ‘backed’	
  by	
  40,000	
  shillings	
  public	
  funds	
  
§  Undertook	
  an	
  impressive	
  series	
  of	
  public	
  works	
  paid	
  in	
  
labour	
  certificates	
  (re-­‐paved	
  streets,	
  new	
  water	
  
system,	
  new	
  bridge,	
  new	
  houses,	
  a	
  ski	
  jump)	
  
¡  RESULT	
  
§  The	
  demurrage	
  charge	
  encouraged	
  circulation:	
  “every	
  
one	
  of	
  the	
  schillings	
  in	
  stamp	
  scrip	
  created	
  between	
  
12	
  and	
  14	
  times	
  more	
  employment	
  than	
  the	
  normal	
  
schillings	
  circulating	
  in	
  parallel”	
  (Bernard	
  Lietaer)	
  
§  earned	
  an	
  international	
  reputation	
  as	
  the	
  ‘miracle	
  of	
  
Wörgl’	
  
§  200	
  towns	
  ready	
  to	
  copy	
  
§  1933:	
  outlawed	
  by	
  the	
  central	
  bank	
  
See	
  Leitaer	
  (2001)	
  The	
  Future	
  of	
  Money	
  
¡  Two	
  basic	
  types	
  of	
  private	
  bank	
  
§  	
  deposit	
  banks	
  (limited	
  to	
  providing	
  payment	
  
system	
  and	
  safe-­‐keeping)	
  
§  lending	
  banks	
  (pure	
  intermediaries	
  between	
  
savers	
  and	
  borrowers)	
  
¡  New	
  money	
  is	
  spent	
  into	
  the	
  The	
  central	
  bank	
  
would	
  conduct	
  monetary	
  policy	
  through	
  
quantity	
  control	
  of	
  the	
  money	
  stock,	
  not	
  
through	
  interest	
  rates	
  
Private	
  banks	
  have	
  a	
  near	
  monopoly	
  on	
  
the	
  creation	
  and	
  allocate	
  of	
  new	
  
purchasing	
  power	
  in	
  the	
  economy.	
  
When	
  money	
  is	
  created	
  for	
  productive	
  
purposes,	
  output	
  tends	
  to	
  increase.	
  When	
  
money	
  is	
  created	
  for	
  unproductive	
  
purposes	
  (i.e.	
  to	
  buy	
  exiting	
  assets)	
  prices	
  
tend	
  to	
  increase	
  (See	
  Werner,	
  2005)	
  
A	
  serious	
  problem	
  arises	
  if	
  inflation	
  is	
  so	
  
high	
  that	
  banks	
  can’t	
  maintain	
  a	
  positive	
  
real	
  interest	
  rate	
  within	
  causing	
  
widespread	
  defaults.	
  	
  
The	
  job	
  of	
  Central	
  Banks	
  is	
  supposedly	
  to	
  
raise	
  interest	
  rates	
  to	
  discourage	
  
borrowing	
  when	
  if	
  inflation	
  is	
  too	
  high.	
  
But	
  this	
  is	
  difficult	
  job:	
  “the	
  function	
  of	
  
the	
  federal	
  reserve	
  is	
  to	
  take	
  away	
  the	
  
punch	
  bowl	
  just	
  as	
  the	
  party	
  is	
  getting	
  
good.”	
  (former-­‐Federal	
  Reserve	
  Chairman	
  
William	
  Martin)	
  
Hence,	
  widespread	
  contagious	
  defaults	
  
are	
  ‘normal	
  functioning	
  events’	
  in	
  a	
  
debt-­‐financed	
  capitalist	
  system	
  (Minksy	
  
1982:37)	
  
¡  Frederick	
  Soddy	
  –	
  chemistry	
  nobel	
  laureate	
  
§  Aimed	
  to	
  set	
  out	
  a	
  system	
  in	
  line	
  with	
  physical	
  principles	
  which	
  he	
  believed	
  to	
  
underlie	
  wealth	
  
¡  Frank	
  Knight	
  picked	
  up	
  the	
  idea	
  and	
  wrote	
  a	
  memo	
  outlining	
  the	
  
scheme	
  to	
  Roosevelt	
  signed	
  by	
  Henry	
  Simons	
  and	
  others	
  colleagues	
  
at	
  University	
  of	
  Chicago:	
  
§  presented	
  as	
  a	
  free-­‐market	
  alternative	
  to	
  the	
  danger	
  of	
  bank	
  nationalization.	
  
“...most	
  of	
  us	
  suspect	
  that	
  measures	
  at	
  least	
  as	
  drastic	
  as	
  those	
  described	
  in	
  our	
  
statement	
  can	
  hardly	
  be	
  avoided,	
  except	
  temporarily,	
  in	
  any	
  event.”	
  (Knight	
  
(1933)	
  
¡  Irving	
  Fisher	
  became	
  most	
  conspicuous	
  advocate,	
  and	
  outlined	
  four	
  
main	
  advantages	
  (Fisher,	
  1936):	
  
§  better	
  control	
  of	
  increases	
  and	
  contractions	
  of	
  bank	
  credit	
  	
  
§  eliminate	
  bank	
  runs;	
  protect	
  payment	
  system	
  from	
  risk	
  of	
  bad	
  lending	
  
§  dramatic	
  reduction	
  of	
  (net)	
  government	
  debt	
  	
  
§  Potential	
  for	
  dramatic	
  reduction	
  of	
  private	
  debts	
  
¡  The	
  idea	
  is	
  enjoying	
  a	
  resurgence!	
  
§  See	
  IMF	
  Working	
  Paper:	
  Benes	
  and	
  Kumhof	
  (2012)	
  .	
  The	
  Chicago	
  Plan	
  Revisited	
  	
  
This	
  system	
  “would	
  restrict	
  borrowing	
  for	
  new	
  investment	
  to	
  
existing	
  savings,	
  greatly	
  reducing	
  speculative	
  growth	
  
ventures”,	
  so	
  that	
  “the	
  classical	
  balance	
  between	
  abstinence	
  
and	
  investment”	
  would	
  be	
  re-­‐established	
  (Daly	
  2013;	
  see	
  also	
  Daly	
  1999:	
  154).	
  	
  
¡  Dittmer	
  (2015)	
  argues	
  that	
  this	
  would	
  cause	
  higher/more	
  
volatile	
  interest	
  rates	
  -­‐>	
  high	
  discount	
  rate;	
  perverse	
  
allocation	
  effects;	
  Regressive	
  distributional	
  effect.	
  
§  But	
  this	
  assumes	
  that	
  demand	
  for	
  credit	
  remains	
  high,	
  which	
  may	
  
not	
  be	
  the	
  case	
  if	
  other	
  measures	
  also	
  implemented	
  (such	
  as	
  
financial	
  transaction	
  tax,	
  CO2	
  caps,	
  measures	
  to	
  bring	
  house	
  prices	
  
down,	
  etc).	
  
§  Also,	
  perhaps	
  the	
  state	
  ensure	
  credit	
  for	
  investment	
  in	
  
“social	
  goods”	
  at	
  low	
  interest	
  through	
  state	
  banks?	
  
Reduce	
  the	
  dominance	
  of	
  profit	
  maximization	
  over	
  other	
  
criteria	
  for	
  allocating	
  the	
  productive	
  resources	
  of	
  society	
  	
  
(Farley	
  et	
  al.	
  2013;	
  Mellor	
  2010a;	
  2010b;	
  Robertson	
  2012).	
  
¡  allow	
  the	
  government	
  to	
  issue	
  more	
  money	
  without	
  
causing	
  inflation	
  
§  assumption	
  that	
  a	
  savings-­‐constrained	
  banking	
  sector	
  would	
  lend	
  less	
  
than	
  today,	
  freeing	
  up	
  existing	
  productive	
  resources	
  –	
  such	
  as	
  labour-­‐
power	
  and	
  natural	
  resources	
  –	
  to	
  be	
  claimed	
  by	
  public	
  spending.	
  
(Dittmer,	
  2015)	
  	
  
¡  steer	
  commercial	
  bank	
  lending	
  in	
  certain	
  directions	
  
§  Practical	
  and	
  political	
  problems,	
  in	
  particular	
  the	
  specification	
  of	
  
eligibility	
  criteria	
  for	
  borrowers	
  (Dittmer,	
  2015)	
  	
  
¡  NB	
  Monetary	
  reform	
  is	
  not	
  necessarily	
  required	
  to	
  do	
  either	
  
of	
  these	
  things	
  (see	
  Campiglio,	
  2014;	
  Strategic	
  QE	
  reports	
  from	
  NEF	
  and	
  The	
  Green	
  New	
  
Deal)	
  but	
  might	
  make	
  it	
  easier	
  for	
  state	
  to	
  hold	
  onto	
  the	
  reigns.	
  
Debt	
  creates	
  growth	
  imperative.	
  Monetary	
  reform	
  
would	
  lower	
  debt	
  levels.	
  	
  
¡  Some	
  versions	
  of	
  argument	
  emphasize	
  the	
  effect	
  of	
  compound	
  interest	
  
on	
  behaviour:	
  ‘Highly	
  indebted	
  protagonists	
  get	
  trapped	
  into	
  hurried,	
  
short-­‐term	
  growth	
  paths’	
  (Leitear	
  et	
  al,	
  2012:	
  203).	
  
¡  Evidence	
  to	
  support	
  this	
  idea	
  is	
  mixed	
  at	
  firm	
  and	
  country	
  level.	
  (ask	
  me	
  for	
  
references)	
  
¡  In	
  UK	
  80%	
  of	
  firm	
  investment	
  comes	
  from	
  savings.	
  Pressure	
  for	
  firms	
  and	
  
countries	
  to	
  grow	
  exists	
  independently	
  of	
  debt	
  levels.	
  See	
  e.g.	
  Gordon	
  and	
  
Rosenthal	
  (2003).	
  
¡  But	
  clear	
  that	
  indebtedness	
  stands	
  in	
  the	
  way	
  of	
  working	
  hour	
  reduction	
  
Other	
  versions	
  of	
  this	
  argument	
  emphasize	
  that	
  if	
  we	
  are	
  
paying	
  interest	
  on	
  our	
  entire	
  money	
  supply,	
  then	
  the	
  money	
  
supply	
  must	
  expand	
  in	
  order	
  for	
  interest	
  to	
  be	
  paid.	
  	
  
§  See	
  e.g.	
  Hixson	
  (1991:	
  188)	
  Douthwaite	
  (1999b:28)	
  and	
  Brown	
  (2008:31).	
  NB	
  Similarilty	
  
with	
  ‘profit	
  puzzle’	
  –	
  see	
  Tomasson	
  and	
  Bezemer	
  (2010:	
  3).	
  	
  
But	
  this	
  argument	
  is	
  based	
  on	
  a	
  confusion	
  of	
  stocks	
  &	
  flows!	
  	
  
§  Both	
  Keen	
  (2010)	
  and	
  Andreson	
  (2006)	
  have	
  developed	
  mathematical	
  models	
  to	
  
demonstrate	
  that	
  –	
  at	
  least	
  in	
  theory	
  -­‐	
  it	
  is	
  possible	
  to	
  sustain	
  a	
  steady	
  amount	
  of	
  
economic	
  activity,	
  and	
  pay	
  interest	
  on	
  the	
  entire	
  money	
  supply.	
  	
  
§  But	
  their	
  models	
  assume	
  that	
  interest	
  flows	
  are	
  re-­‐circulated	
  into	
  the	
  economy	
  in	
  a	
  way	
  
that	
  does	
  not	
  increase	
  inequality.	
  E.g.	
  that	
  bank	
  profits	
  are	
  not	
  used	
  for	
  further	
  
accumulation;	
  that	
  credit	
  allocation	
  decisions	
  do	
  not	
  cause	
  asset	
  bubbles	
  etc..	
  
So	
  perhaps	
  the	
  real	
  problem	
  is	
  the	
  contribution	
  of	
  the	
  
monetary	
  system	
  to	
  inequality?	
  
¡  NB	
  Interest	
  and	
  debt	
  could	
  still	
  build	
  up	
  after	
  monetary	
  reform	
  
How	
  the	
  current	
  system	
  works,	
  and	
  implications	
  for	
  financial	
  instability	
  
¡  Ryan-­‐Collins,	
  J.	
  et	
  al.,	
  (2011).	
  Where	
  does	
  money	
  come	
  from?	
  New	
  
Economics	
  Foundation.	
  See:	
  http://www.neweconomics.org/
publications/entry/where-­‐does-­‐money-­‐come-­‐from	
  
¡  Read	
  ‘Chapter	
  1:	
  Introduction’	
  and	
  ‘Chapter	
  2:	
  The	
  Chicago	
  Plan	
  in	
  
the	
  History	
  of	
  Monetary	
  Thought’,	
  in	
  Benes	
  and	
  Kumhof	
  (2012)	
  The	
  
Chicago	
  Plan	
  Revisited,	
  IMF	
  Working	
  Paper	
  WP/12/202	
  
	
   	
   	
   	
   	
  	
  
The	
  "green"	
  case	
  for	
  monetary	
  reform	
  
¡  Douthewaite,	
  R.	
  (1999b).	
  The	
  Ecology	
  of	
  Money.	
  Green	
  Books.	
  Read	
  
online:
http://www.feasta.org/documents/moneyecology/contents.htm	
  
¡  Douthwaite,	
  R.,	
  2012.	
  Degrowth	
  and	
  the	
  supply	
  of	
  money	
  in	
  an	
  
energy-­‐scarce	
  world.	
  Ecological	
  Economics	
  84,	
  187–193	
  	
  
¡  Mary	
  Mellor	
  (2010)	
  Could	
  the	
  money	
  system	
  be	
  the	
  basis	
  of	
  a	
  
sufficiency	
  economy?	
  real-­‐	
  world	
  economic	
  review	
  54	
  
www.paecon-­‐net/PAEReview/issue54/Mellor54.pdf	
  
¡  Lietaer,	
  B.,	
  Arnsperger,	
  C.,	
  Goerner,	
  S.,	
  and	
  Brunnhuber,	
  S.	
  (2012).	
  
Money	
  and	
  Sustainability:	
  the	
  missing	
  link.	
  Triarchy	
  Press.	
  Read	
  
online:	
  http://www.money-­‐sustainability.net/read-­‐the-­‐book/	
  
¡  Farley,	
  J.;	
  Burke,	
  M.;	
  Flomenhoft,	
  G.;	
  Kelly,	
  B.;	
  Murray,	
  D.F.;	
  Posner,	
  
S.;	
  Putnam,	
  M.;	
  Scanlan,	
  A.;	
  Witham,	
  A.	
  (2013)	
  Monetary	
  and	
  fiscal	
  
policies	
  for	
  a	
  finite	
  planet.	
  Sustainability,	
  5,	
  2802-­‐	
  2826.	
  
¡  Scott	
  Cato,	
  M.	
  and	
  Suárez,	
  M.	
  (2012).	
  STROUD	
  POUND:	
  A	
  LOCAL	
  
CURRENCY	
  TO	
  MAP,	
  MEASURE	
  AND	
  STRENGTHEN	
  THE	
  LOCAL	
  
ECONOMY.	
  International	
  Journal	
  of	
  Community	
  Currency	
  Research.	
  
Volume	
  16	
  (2012)	
  Section	
  D	
  106-­‐115	
  
	
  
	
  
Critical	
  responses	
  
¡  Dittmer,	
  K.	
  (2015),	
  "100	
  percent	
  reserve	
  banking:	
  A	
  critical	
  review	
  of	
  
green	
  perspectives",	
  Ecological	
  Economics,	
  Volume	
  109,	
  January	
  2015,	
  
Pages	
  9–16	
  	
  
¡  Dittmer,	
  K.	
  (2013).	
  Local	
  currencies	
  for	
  purposive	
  degrowth?	
  A	
  quality	
  
check	
  of	
  some	
  proposals	
  for	
  changing	
  money-­‐as-­‐usual.	
  Journal	
  of	
  
Cleaner	
  Production,	
  Volume	
  54,	
  1	
  September	
  2013,	
  Pages	
  3–13	
  
	
  	
  
Alternative	
  proposals	
  that	
  stop	
  short	
  of	
  monetary	
  reform:	
  
¡  See	
  argument	
  for	
  Strategic	
  QE	
  report	
  from	
  NEF:	
  
http://www.neweconomics.org/publications/entry/strategic-­‐
quantitative-­‐easing	
  
¡  For	
  monetary	
  tools	
  to	
  guide	
  finance	
  in	
  direction	
  of	
  green	
  investment:	
  
Campiglio,	
  E.	
  (2014).	
  Beyond	
  Carbon	
  Pricing:	
  The	
  role	
  of	
  banking	
  and	
  
monetary	
  policy	
  in	
  financing	
  the	
  transition	
  to	
  a	
  low-­‐carbon	
  economy.	
  
Centre	
  for	
  Climate	
  Change	
  Economics	
  and	
  Policy	
  Working	
  Paper	
  No.	
  
181.	
  
¡  Also	
  see	
  argument	
  for	
  credit	
  guidance	
  in	
  Werner,	
  Richard	
  A.	
  (2005).	
  
New	
  Paradigm	
  in	
  Macroeconomics:	
  Solving	
  the	
  Puzzle	
  of	
  Japanese	
  
Macroeconomic	
  Performance,	
  Basingstoke:	
  Palgrave	
  Macmillan	
  
	
  	
  
History	
  of	
  money	
  creation:	
  
¡  Ingham,	
  G.,	
  (2004).	
  The	
  Nature	
  of	
  Money.	
  Polity	
  Press.	
  	
  
¡  Felix	
  Martin	
  Money:	
  the	
  unauthorised	
  Biography