The original slides for this presentation were remastered by Ken Royall.  This web-page is adapted from those slides with the addition of the spoken text presented as part of Jem Bendell and Matthew Slater’s (2015) “Money and Society” course in August/September 2017.  For further information see: •


Lesson 3

RubbishTipProblems with Money

“All of the perplexities, confusion, and distress in America arises … from downright ignorance of the nature of coin, credit, and circulation.” – John Adams (1787) Founding Father of the American Constitution

Welcome to Lesson 3 of the Money and society MOOC. So far we’ve looked at what money actually is, how it works, and how throughout history powerful people have sought to control it and manipulate it. Today we are looking at the externalised costs of modern money. When the only perspective that matters is the corporate balance sheet, and a positive number at the bottom called profit, many costs are not expressed or felt financially and so are conveniently invisible to accountants.
In his TV series, celebrity historian Niall Ferguson (2008) argued “Credit and debt are the building blocks of economic development, but it takes banks to elevate that relationship beyond the tie between a loan shark and his hapless victim. Its only when borrowers… have access to efficient credit markets that they can escape the clutches of …loan sharks.” As you will recall from lessons 1 and 2, the idea that banks channel deposits to borrowers is fiction.



Film maker Paul Grignon explains two separate mechanisms that mean the total amount owed to banks is increasing and must always increase in the current system.

Curiously he is the only person we have heard talking about twice lent money, and although we find the argument very compelling and elegant, especially as it doesn’t involve interest, we’ve yet to find any serious analysis or discussion of this phenomenon in mainstream or heterodox economic literature, so we can’t give it any more time here. We will now focus on the transfer of wealth that comes through interest.

Some economists argue that interest per-se is not a problem, and that if the cost of money is affordable, and if interest earned is spent back into the economy, then what’s the problem? This has been a hot subject for some millennia, as discussed in lesson 2. Scholars have attempted to break down interest into several components, each with its own moral and economic justifications. For example: • Insurance against default lcost of administering the loan versus • compensation for inflation over the course of the loan plus of course • profit for the lender. (Quizlet)

So arguments against interest need to be aware of all of these. We saw in lesson 2 how the functions and costs of loans were mixed up in order to mask the component which the scholastic theologians were saying was immoral.  We should be aware of similar obfuscations today. In particular remember that for most of history, discussions about interest assumed that money was a commodity, that it existed, and that it could only be lent to one person at a time. However none of this is true of modern money.

• We find it ironic that interest contains a risk premium in case the borrower defaults, yet by some accounts all major banks are now insolvent and have already defaulted, and can only lend by lying on their balance sheets.

• We also find it ironic, that there might be an inflation component of interest, when Postiive Money and others argue that excessive mortgage lending has caused house price inflation.

Discussion on these subjects, understanding, and regulation of them seem to us mostly absent at this time and place in history. And yet interest plays a huge role in our modern economy. Architect turned monetary theorist Margrit Kennedy estimated that, when you look all way down the supply chain, around 40% of the price of goods and services is accounted for by interest. Which is to say prices would be 40% cheaper if businesses had access to capital without borrowing at interest. She also pointed out interest flows from the many to the few. If we distinguish society according to those that pay more interest than they earn and those who earn more interest than they pay we find only the top decile in the latter group. Overall, the poorest 80% of people are paying interest to the richest 10% (MoNetA 2013)

For a fuller explanation, watch “A flaw in the money system” from the late Margrit Kennedy’s monetary reform group, MoNetA.



MoNetA A flaw in the money system (2013)

Since lending was deregulated in the 1980s we have seen a massive expansion in the quantity of money/debt, and hence the power of the lenders.

Economists like Milton Freidman (Friedman and Schwartz, 1963) became popular with policy-makers in the early 1980s as well as the earlier work of Austrian economist Friedrich Hayek, whose theory of the business cycle was that it was caused by too much government intervention, and who counselled a laissez faire approach. Many banking regulations were relaxed in the 1980s and the volume of credit in the economy started to expand unchecked, and with it, banks’ influence over the economy. (Wray, 2013).

Alan Greenspan, chairman of the Federal Reserve 1987-2006,”was such a true believer in the efficient markets hypothesis that he apparently genuinely believed that market action alone would quickly prove an effective prophylactic against fraud.” (Forbes 2013). This also meant that while a certain amount of fraud should be tolerated, he thought outlawing fraud was unnecessary in a properly functioning free market economy.

The erstwhile chairwoman of the Commodities, Futures and trading Commission (CFTC) Brooksley Born, famously tried to warn Greenspan about derivatives but ignored the warning and moved to silence her. (PBS, 2009)

One aspect of the deregulation was the repeal of the Glass-Steagal Act in 1999. This act was put in place after the crash of 1929 to prevent banks from speculating with customers’ deposits. It separated the riskier parts of the banks from the parts which were supposed to be safe. Recent talk about reintroducing such law, has instead been called ‘ringfencing’

In 2008 former Federal reserve chairman Greenspan publically admitted he was wrong to believe that banks would act in the best longterm interests of their shareholders without regulation (C-SPAN). It seems now that without regulation, and with the help of computing power, a credit bubble larger than any in history was blown, and over-optimistic, perhaps miseducated economists reported that bubble as economic growth. Since that 2008 admission Greenspan’s legacy of no significant regulation continues.

And when governments do want to be seen to regulate banks’ cutting edge financial products they have very few experts to turn to. If banks were to assist in writing the legislation to curb their own activities, they might have the means, the motive and the opportunity to misdirect the legislation or allow loopholes in it.

How does regulation affect trust? Who needs to trust whom? When is it the government’s job to protect consumers of financial products?


Friedman, M and A. Schwartz (1963)  A Monetary History of the United States, 1867–1960.

Wray, L. R. (2013). Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary

Forbes 2013

PBS The Warning (2009)

Greenspan’s confession C-SPAN


4. Discounting the future

New imageWhen interest rates are positive, the further ahead an asset or cost is, the more its value is diminished in today’s money.

Thus, on today’s balance sheet, the decommissioning of a nuclear power station 50 years from now is very affordable.

Similarly don’t waste your money planting trees when the money will grow faster in the bank

Think: How would the future assets and liabilities appear on balance sheets if interest rates were negative? 

Our custom of charging interest on loans profoundly affects the way accountants value things in the future. They have a technique called ‘Discounted cashflow’. It looks at the value of something in the future, and prices it in today’s money, considering what the money would earn in the bank between now and then. So an asset which will mature in 10 years for $100 is worth only $61 now @5%. An asset that, in a hundred years will be worth $1000, it would be worth only $7.60 in today’s money.

This way of telescoping future value so that costs and benefits in the future are much less than costs and benefits now, could explain the short term thinking which is so prevalent in business. We may blame politicians for thinking only to the next election, and we may blame shareholders for demanding maximum short-term yields, but perhaps both are explained when we look at the world as an accountant in an interest-bearing monetary system.

This technique is equally true of assets as liabilities so the cost now of decommissioning a nuclear power station in 50 years, is very affordable in today’s money. Similarly by budgeting nuclear hygiene from an ongoing process, to something that happens at the end, costs can appear reduced in the distance. It is easy to see how these accounting tricks could be used to mask costs in order to make a political argument for nuclear power.

Tangentially perhaps, there is another risk associated with this technique, which we are seeing with fracking companies. There is a pattern of them going bust as the field is exhausted, and they are unable to pay for the cleanup. (Guardian 2014)

How would we plan for the future if interest rates were negative?

Before moving on, watch A bee’s invoice by Adrian Grenier (7 mins)


Lietaer et al (2012) Money and Sustainability, Club of Rome. pp96

Guardian, Taxpayers to pay for fracking pollution if companies go bust (2014)


5. Commodification of Nature

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Cree Indian prophecy
Philosopher Charles Eisenstein (2011 and 2013) talks about a process he calls the ‘monetisation of everything’. Economic growth, he says, means that money grows into new areas of our lives, either because technology has created new economic spaces, or because things which used to be free or common, such as water, entertainment, babysitting, and radio frequencies, become professionalised, monetised and paid for. He suggests that if the economy is growing, something must be shrinking, and what is shrinking is all the wealth that was part of the fabric of life and never needed to be paid for.

As the environment becomes commoditised, one approach from environmentalists, is to put a higher price on it. Hang on, they say, this tree isn’t just firewood, it is a carbon sink, a climate regulator, it prevents soil erosion, provides shade, home for animals, yields fruit and much more. We should save the bees, they say, because the cost of pollenating a field of corn by hand is incalculable. This approach is now being developed into markets for ecosystem services.

One strategy coming from this way of thinking is ‘biodiversity offsets’, where a company could offset their destruction of one ecosystem by paying to conserve another.

There are many criticisms of this way of thinking:
– It implies that pricing nature in money is meaningful and that the natural world is property that we own, and that we MAY junk if the price is right.
– This approach has an appeal to financiers but crowds out out policy space for conservation,
– it puts natural ‘resources’ squarely in the market place where there fate is determined by people who may be more concerned about enriching themsleves. (Schröter, M, 2014).
– And finally when we compare things like ecosystems, against each other, a mono-dimensional monetary evaluation ignores everything which is special and unique such as habitats, history and beauty; it takes into account only that which is measurable in dollars e.g. the volume of wookd that can be extracted, or tourist revenue.

This commodification process works the same in human relationships: in a community, everyone has a role to play, people need each other. But in a market place, where exchange happens on the basis of an anonymous, homogenous medium of exchange, all goods and services comparable no matter where they come from. Sentiment, uniqueness, personality, quirks, are valued much less than what makes things comparable. For example you might value your mother’s apple pie, much more than a supermarket microwave apple pie, but side by side on the shelf, they might have the same price. That’s because the ‘your mother made it’ cannot be factored into the price.

– Over a hundred years ago, Philospher Georg Simmel thought that “money, by its very nature becomes the most perfect representative of a cognitive tendency in modern sciences as a whole: the reduction of qualitative determinations to quantitative ones”  (cited in weatherford, 2009). He suggested that this means we risk valuing money more than other things. It was a critique similar to that of Karl Marx, who described us developing a fetish about money due to it commanding access to all else, and also to John Ruskin, who felt moved to proclaim in rebellion against the economists in the 1800s that “There is no wealth but LIFE!” Reviewing the literature from historians and anthropologists, Jack Weatherford (2009) argued that as money evolved over time it “was changing the world’s systems of knowledge, thinking, art and values” (p88).

An expansionary monetary logic will attempt to commodify all of nature. For example a peat bog has a role as a carbon sink and a natural habitat, however if the local power station needs peat, that bog becomes a commodity which is worth more dollars when burned.

Some de-personalising of economic life and some categorisation of things can be helpful, but something is always lost when special things or people are reduced to numbers like statistics or prices.


Eisenstein, C. (2011) Ascent of Humanity,

Eisenstein, C. (2013) Gifting Circles and the Monetization of Everything in (2013)

Schröter, M et al (2014) Ecosystem Services as a Contested Concept: a Synthesis of Critique and Counter-Arguments, in Conservation Letters, Volume 7, Issue 6, pages 514–523, November/December 2014

Weatherford, J (2009) The History of Money, Crown Publishing Group.



6. More Money = More Debt

Think: What should governments counsel citizens to do with their debts in a recession? How much sense does it make sense to lower interest rates to encourage people and business to borrow and spend?

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If you click on the debt clock, you’ll see a map that shows the most developed countries are the most in debt – this is the public debt, or the government’s debt which excludes private lending like mortgages and business lending including between banks.

Some economists are concerned about the high levels of debt, others regard government indebtedness as normal. Government debt very rarely goes down, and it is questionable whether anybody REALLY expects it ever to be paid off! The important thing is that, the debt is ‘served’ as interest is paid on it out of our taxes. One way the debt is kept manageable while always going up is by allowing, perhaps encouraging, a mild inflation.

If politicians want to show how responsible they are, they talk about reducing the deficit, which is the rate of increasing the debt. Halving the deficit means the debt is going up only half as fast.

We, your tutors rarely see, in mainstream economics, the observation that most of the money is debt, and we have not seen in mainstream media the observation that as the debt is reduced, the money supply shrinks, which is deflationary. So, using money as debt gives governments as debtors some interesting choices, because the money supply cannot be managed independently of other critical things like banking sentiment, interest rates and overall indebtedness. For example, if the economy needs more money somebody has to get into more debt. If the economy needs to slow down then somebody has to pay back debt. This relationship is counter-intuitive and makes no sense to policy makers.

Think for a moment.  What should governments counsel citizens to do with their debts in a recession? How much sense does it make sense to lower interest rates to encourage people and business to borrow and spend?







We have seen how there is a constant flow of money from people without, towards the people who already have it, or at least towards those who have a license to guarantee the borrowing of others.

Some economists claim that the rich must get richer in order for the poor to get richer. This is sometimes called ‘supply-side’ economics, or, by its critics, ‘trickle-down’ economics. In the 1980s, US President Ronald Reagan used this reasoning when he was cutting tax for the rich, but as inequality has been only increasing still then, and the poor are still without essentials, this reasoning is increasingly hard to justify, and is now being criticised by opposition politicians (Mother Jones, 2015).

By cherry-picking data of incomes of different nations, some studies claim that income inequality is declining and that the world is becoming a fairer place (Lakner & Milanovic 2014). The logic of interest, in which the many borrow from the few, indicates this is mathematically impossible, and studies which don’t focus on nations as unit of analysis, but on people, report extreme inequality. For instance, Oxfam reported in 2014 that the richest 85 richest people own the same amount of wealth as half of the world’s population.

Higher inequality has been correlated with increased social problems, including for the middle classes and the rich (Salverda et al, 2009) and even greater environmental degradation (Boyce, 1994). Meanwhile some studies show that more equal nations ‘outperform’ less equal nations. Epidemiologist Richard Wilkinson (in the Spirit Level) said “as inequality increases, [drug abuse and imprisonment and teenage births and so on] get more common all the way across society, not just among the poor” (Too Much Online, 2015) There is also now evidence of the financial problems that high inequality can cause. The International Monetary Fund published a report correlating income growth of high-income households with financial crises (Kumhof, 2013).

Pope Francis has expressed concern about the social ramifications of growing inequality, he wrote: While the earnings of a minority are growing exponentially, so too is the gap separating the majority from the prosperity enjoyed by those happy few. This imbalance is the result of ideologies which defend the absolute autonomy of the marketplace and financial speculation. Consequently, they reject the right of states, charged with vigilance for the common good, to exercise any form of control. A new tyranny is thus born, invisible and often virtual, which unilaterally and relentlessly imposes its own laws and rules. Debt and the accumulation of interest also make it difficult for countries to realize the potential of their own economies and keep citizens from enjoying their real purchasing power. (Vatican 2014)

Sometimes the problem of inequality is addressed by redistributing the wealth. The government does it through programs such as social security and grants, and the rich do it through foundations and other acts of charity. However no amount of generosity, can change the dynamic arising from money creation as interest bearing debt. Consequently, acts of redistribution tend to reinforce social divisions, and they also allow the rich to project their ideas about the more beautiful world onto the poor. For example the Gates Foundation does what wealthy white man Bill Gates thinks is valuable, but to whom is really accountable to, in spending his own billions? Governments are theoretically more accountable although criticism abounds about the impact of social programs on the poor, and critics have shown many ways how social programs can exacerbate social problems.


Boyce, JK (1994) ‘Inequality as a Cause of Environmental Degradation’, Ecological Economics, vol.11, 1994. Also available at:

Kumhof, Inequality, Leverage and Crises (2013)

Lakner & Milanovic Global income distribution: From the fall of the Berlin Wall to the Great Recession (2014)

Mother Jones (2015)

Oxfam (2014) Rigged rules mean economic growth increasing inequality, press release

Salverda, W and B. Nolvan, T.M. Smeeding (2009) Economic Inequality (New York: Oxford University Press Inc, 2009)

Too Much Online, Two Irrepressible Egalitarian Spirits (2015):




8. Political abuse of payment cartels

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Sometimes the power of financial organisations to regulate our politics becomes rather obvious.

• In 2011 after Wikileaks continued to embarrass the US military by releasing diplomatic cables on the conduct of US wars, payment companies Visa, MasterCard, Western Union and PayPal responded to a couple of US politicians and blocked Wikileaks’ accounts, preventing them from receiving donations, even in Europe. WikiLeaks (2011) said in a statement: “The blockade is outside of any accountable, public process. It is without democratic oversight or transparency. The US government itself found that there were no lawful grounds to add WikiLeaks to a US financial blockade. But the blockade of WikiLeaks by politicised US finance companies continues regardless.”

• Similarly in 2012, the US corporate pressure group United Against Nuclear Iran (UANI) called on SWIFT to block all Iranian finance institutions. Two months later the EU Council ordered SWIFT to do so, and the Belgian organisation mostly complied, although the EU Court later ruled this illegal. The UANI web site now states (end 2014) “SWIFT must immediately expel these [remaining] 12 banks or face U.S. sanctions. Additionally, the EU must be in lockstep with the U.S. on Iran sanctions by blacklisting these Iranian banks.” UANI (2014). Trader and gold advocate Jim Sinclair put it like this: “Believe me the SWIFT system works for the West.  It’s located in Belgium and you would think the US had no power on it.  It’s never discussed as being a US arm, but it is a US weapon.” (quoted in Forbes, 2012)

• Throughout 2014 the US encouraged Europe into imposing financial sanctions on Russia, which targeted five major state-owned Russian banks (EU, 2014).

= In the preceding three cases we see American power using its power over payment infrastructures to bend enemy countries to its will,.


National governments and banks work closely in extending power in a more subtle way. Initiatives to curb money laundering have upgraded banks from a global payments network into a global surveillance network, reporting everything to the US Government. In addition global payment networks are routinely hacked, with the NSA high on the list of suspects! (Der Spiegel 2013)

Such powers are normally associated with oppressive governments; Former lieutenant colonel in the East German secret police, Wolfgang Schmidt said about the current magnitude of domestic spying in the United States, “You know, for us, this would have been a dream come true,” (McClatchy D.C. 2013) Indeed, banks know our real identities, where we live, who we work for, they know what we buy, when we buy it, where we buy it. With this financial data combined with Facebook profiles, medical records, and browsing history, it is getting easier and easier to identify likely political dissidents by querying the NSA database. And just as easy to block their access to financial services (computer says no!), and gather evidence for a secret court.


The Network of Global Corporate Control

Wikileaks statement

UANI (2015)


EU (2014): 

Der Spiegel, Follow the Money: NSA spies on international payments (2013)

McClatchy D.C.(2013) Memories of Stasi color Germans’ view of U.S. surveillance programs:

Reuters (2014)

Before moving on watch Money & Life (until 20:10):


9. Inevitability of default

New imageA closer look at systems of money as interest bearing debt suggests that at a cumulative level, a population will be entrapped by unpayable debts. That’s because there is not enough money in circulation for everybody to pay off their loans. Competition for money is high, and borrowers, will struggle to obtain the money they need to make their repayments.

Some may be able to ‘rollover’ their loan, which means borrowing to make today’s repayments, but inevitably blameless borrowers will default; their collateral being seized by the bank. If the business cycle is accepted as a fact of life, then acquiring cheap collateral from defaulting business looks like part of the business model of banking.

This is beautifully illustrated by Paul Grignon in Money as Debt II

There are many charities to support troubled debtors and they receive donations from the banking sector. There are also efforts to promote financial literacy amongst disadvantaged communities and young people, which focus on personal budgeting. But does this mode of charity absolve irresponsible lenders by diverting attention and blame to impoverished borrowers?

How many charities are working to curb irresponsible lending, or change a money system that has bankruptcy built in?


Money as Debt II:

Now watch: Money as Debt II to 35:00 – is this the same link?

10. Bubbles

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  • Tulips
  • French Mississippi Company
  • South Sea Company
  • Dot Com
  • Sub-prime Housing
  • Government bonds
  • Oil
  • The dollar
  • Bitcoin?

There is some dispute about how markets work and should work. Are markets rational, or do they amplify the irrational behaviour of the humans they are comprised of? One important but strange behaviour is a propensity for prices in one particular asset, or market, to rise exceedingly high before crashing back to normal.

When this happens everybody profits from buying and selling a commodity as the price gets higher, but when the market realises the price is too high, or when the money runs out and people can’t afford to buy any more, then the correction happens suddenly and unexpectedly. This is called a bubble, bursting. The people holding those commodities at that moment take huge losses – the total of all the profits made on the way up.

Economic historians can point towards many bubbles: Tulips (1634-38), French Mississippi Company (1719-20), South Sea Company (1720), U.S. stock market (1924-29) (PBS)

In retrospect bubbles are clearly observable on the charts, but bubbles today are no easier to spot before they burst than they ever were.
Sir John Templeton, founder of Franklin Templeton Investments, used to say, ironically ‘This time its different‘, which, given the history bubbles, is a necessary belief for everyone participating in a market which is overheating. There are many ways in which markets lose sight of the ‘real’ value of things:

High prices can be sustained for long periods through manipulation of markets and public relations. For example Positive Money shows that, by making more money available as mortgages, banks have been fueling a housing bubble since the 80s. The housing bubble crash of 2008, corrected only a few years of that, so are we in still in a housing bubble, or has the value of houses really gone up? lThe reasons for high prices are not always clear; is supply down? Is demand up? Why is demand up? Who is buying? What do they know that I don’t know? Will demand be sustained?

Even in retrospect historians disagree about these things. When oil went to $146 in 2007, some said it was because of peak oil and economic growth, supply could no longer match demand. Others said it was Goldman Sachs pushing the market around through futures contracts. When oil dropped at the end of 2014 some said the end of quantitative easing had burst the bubble, other said the price was suppressed by an American-Saudi plot to break Russia.

Sometimes there are real unknowns and the bubble is speculating on some future event or judgment. For example in ‘All watched over by machines of loving grace’, Adam Curtis describes how it was believed that algorithmic trading bots would ensure stability and rationality in markets, but the benefit of that technology was that bubble blowing became a science. Traders and politicians really believed that there would be no more bubbles, but what they got was a smoother, more invisible and larger bubble than every before. lSome bubbles are inconclusive. Take Bitcoin, which started at nothing and has risen and crashed dramatically about 3 times. After looking at that chart, which shows the price many multiples higher than the initial peaks, it is hard to agree on what constitutes a bubble, and of course the ‘real’ value of bitcoin remains to be seen. Bubbles are not merely price phenomena, they are always accompanied by a buzz, rumours, even expert opinions, even academic insights

In recent years economists who study bubbles have become more popular, such as Schiler.  However such popular work contains very little analysis of the role of money and banking in bubbles. We merely observe that the first really big bubbles, Tuplipmania and the South Sea Bubble appeared within 25 years of founding of the Dutch and English central banks.

Some people believe that bubbles happen occasionally when human sentiments get carried away, but we, your tutors think that large players in the marketplace, seeking to fleece each other and the market at large have always sought to control or even create bubbles; Furthermore we suggest in the next slide that bubbles are part of the normal operation of markets, and elsewhere that bubble blowing is a policy tool for making a fake recovery from busts, without the pain, risk and hassle of actually working off debts or increasing real prductivity.

Before moving on, enjoy ‘Fear the Boom and the Bust.’:Fear the Boom and the Bust • – is this the same link?


PBS Famous Bubbles

CNBC Welcome to the Everything Boom, or maybe the Everything Bubble (2014)



11. The business cycle

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New imageThe relationships between governments, deficits, debt and growth, banks and central banks, who set base rates of interest, is complex and unstable, and there are different theories about how they interact, and how policymakers can and should intervene when these things get out of balance.

In fact the Western economy never seems to reach equilibrium, instead it wobbles on a knife edge of more or less severe booms and busts every five years or so, and usually maintaining an average growth rate approximate to interest. This has come to be known as the business cycle, and it is a problem for business because demand, and the cost of credit fluctuate; and it is a problem for government which wants to see stability (Wray, 2013).

When the economy is in the ascendant, sales are increasing, everyone feels they are doing well, they are optimistic, they invest in the future by borrowing. That brings more money into the economy and the confidence feeds itself. Then the economy or some sector in it becomes ‘overheated’ and the dynamic reverses, those overoptimistic businesses go bust, others try to pay down their loans, the monetary volume decreases, trade slows and so on…

There are different theories about causes of this cycle, blaming industry or the government (for whom we just pointed out the cycle is a problem), We concur with the Austrian school’s analysis which blames central banks who set interest rates. This Goldsilverworlds blog (a very Austrian name) sums it up nicely,  “central banks don’t help in smoothing the amplitude of the cycles, but rather are the cause of cycles.” (GoldSilverWorlds, 2014)

Bill Still, the stalwart campaigner who produced the famous documentary Money Masters, argues that since bankers profit more from unstable markets than stable ones, they ‘row’ markets with oscillating interest rates, profiting from both increased lending on the ups and from foreclosures on the downs.(Still, 1996)

This concerns us here not only because of the role of mainstream monetary systems in enabling them. As banks lend new money to those promising great returns, and banks prefer secure collateral, this leads to banks providing loans leveraged buyouts and for speculation in assets. (Ryan Collins et al, 2011).

Meanwhile, the profession continues to ignore the insight on the credit cause of bubbles from some political economists over the last century. Karl Marx (1818-1883) did not spend as much time analysing money as he might, but here he summarises the bubble mechanism extremely well. This is from Marx’ Capital Vol. III Part V Division of Profit into Interest and Profit of Enterprise (prepared by Friedrich Engels from notes left by Karl Marx and published in 1894). Interest-Bearing Capital (Chapter 30. Money-Capital and Real Capital)

“In a system of production, where the entire continuity of the production process rests upon credit, a crisis must obviously occur—a tremendous rush for means of payment—when credit suddenly ceases and only cash payments have validity. At first glance, therefore, the whole crisis seems to be merely a credit and money crisis. And in fact it is only a question of the convertibility of bills of exchange into money. But the majority of these bills represent actual sales and purchases, whose extension far beyond the needs of society is, after all, the basis of the whole crisis. At the same time, an enormous quantity of these bills of exchange represents plain swindle, which now reaches the light of day collapses; furthermore, unsuccessful speculation with the capital of other people; finally, commodity-capital which has depreciated or is completely unsaleable, or returns that can never more be realised again”.

While much attention is given to mitigating the destabilising effects of the cycle, debates about the causes of bubbles seem inconclusive. Could the business cycle be a fact of life, something which inevitably emerges from ‘human nature’ and which we are condemned to repeat? Or is the constant expansion and winnowing of commercial activity a good thing, allowing innovation and growth, and then trimming or culling the wasteful activities to make capacity for the next round?


Wray, L. R. (2013). Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems. New York: Palgrave Macmillan.

GoldSilverWorlds (2014):

Bill Still Money Masters until 22:25 (1996)

Ryan Collins, J et al (2011) Where Does Money Come From, New Economics Foundation, UK.

Marx, 1909, V.XXX.34: Fear the Boom and the Bust

Keynes vs Hayek Round II

12. Keynesian Stimulus

New imageSo when the economy is in the doldrums, like after a war, or after a bubble has popped, spending is low and unemployment is high and confidence is low, what can the government, tasked with the job of managing the economy, do about it?

The British economist Keynes (1936), who worked during the great depression of the 1930s, and who is still influential today, described how governments can always get the economy out of a hole by spending money into circulation, ideally on infrastructure projects.

That money creates jobs, gives liquidity to the economy, and restores confidence etc, similar to blowing a bubble, then as things pick up, that governmental outlay can be collected back in taxes (unlike in a bubble) or left to serve the newly expanded economy. This is called a Keynesian stimulus approach; it has been used nearly every time an economy dipped since the war. This was very much in line with Chartalist thinking which said full employment should be the goal of economic policy, which was especially resonant after WWII. Keynes’ colleague Lerner wrote in 1947, “By virtue of its power to create … money by fiat and its power to take money away from people by taxation, [the state] is in a position to keep the rate of spending in the economy at the level required to [maintain full employment].”

But this time its different. The stimulus approach is helping GDP less and less. This is called the Marginal Productivity of Debt – see Ross-Healy Files*.  Even with money available to borrow, there is little appetite for borrowing because banks fear that borrowers won’t be able to repay in a moribund economy (Money Week 2012).

Decorated Economist Paul Krugman argues that the 2008 crisis was very large and the stimulus measures didn’t work because they were not enough. Others are saying that governments shouldn’t risk further deficit spending when it seemingly has no impact. Still others argue that the current stimulus packages empower the banking sector, rather than ensuring money is spent or lent into society (Ryan Collins, et al,  2011). Some are saying that the stimulus money has had the effect of inflating asset bubbles, especially the stock market, and these are all valid points of view.

But what most economists would agree is that even more stimulus might be affordable now, while interest rates are near zero, but would be extremely risky in the medium and long term because this current Zero Interest rates policy (ZIRP) is a temporary economic haven. All that we have read says that interest rates MUST go back up at some point, and if and when that happens, servicing debt will become much more difficult.

Krugman suggest that such concerns would soon disappear in the face of a more visceral threat such as a war or an alien invasion, then we would borrow enough to invest seriously in recovery, and be able to pay it back (CNN 2011)

But we would like to point out something which we’ve never seen discussed in the mainstream media. Today’s stimulus packages, are quite different to what Keynes proposed and what worked in the decades after WWII. These days, so called ‘Keynesian’ stimulus money is borrowed from banks like all government deficit spending and then lent back to the banks at 0%. Therefore it all adds to the taxpayer’s debt and the interest burden. Keynes would have been horrified that that stimulus packages in his name, were being financed by borrowing. As Lerner clearly said above, it is fiat money that give the state this power. And if more money was created than the growing economy could absorb, there would be inflation. But are we really paying 10% of our tax revenues to banks [REF], and suffering high unemployment just to avoid a little inflation?


Money Week, 2012 To 16:00

Ryan Collins, J et al (2011) Where Does Money Come From, New Economics Foundation, UK.

Keynes, JM (1936) The General Theory of Employment, Interest and Money.

Lerner A. P (1947) Money as a Creature of the State. American Economic Review, Vol 37 No 2, 312-17.

CNN interview with Paul Krugman (2011)

*Ross-Healy Files:

13. Austerity

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Anti-austerity rally in Valencia, Spain
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Tightening the belt – A metaphor or a euphemism?

By the late 1970s, high levels of employment had led to strong trades unions in US and Western Europe. Their effective demands for higher wages were blamed for inflation and a new theory of ‘monetarism’ sought to manage inflation as a higher priority than full employment.

Former British Prime Minister Margaret Thatcher didn’t believe in deficit spending and she didn’t like the inflation. She famously compared the government’s budget to a household budget. She perhaps didn’t know that it’s a misleading metaphor because households don’t have the ability to issue money by decree, or to pay the bills with ‘promises of money’.

The household metaphor only applies to governments which have tied their own hands by going to banks for deficit spending, and thus are subject to the whims of the economy like any household.

When her son got lost in the desert, and Search and Rescue services presented the bill, the housewife Mrs Thatcher paid the bill, and tightened the family budget until the finances recovered. After all, debts must be paid, and delaying only makes it worse.

And when the banking sector imploded and demanded a government bailout in 2008, the governments of Europe did the same, they paid the bill and announced a grim decade of austerity measures, similar to what the International Monetary Fund (IMF) had been requiring debt-troubled countries to do for decades: cut public spending, sell public assets, increase taxes on citizens who are unlikely to emmigrate, cut taxes for businesses in hope of enticing them into the country, and so hope to get on top of interest repayments bring the debt down to managable levels in a few years. This option is of course unpopular with a general public who like to see some services delivered in compensation for taxes paid. Cuts in social security and unemployment hit the poor especially hard, leading to social unrest, targeting of hated minorities, and envy of the rich.

All this leads to a long term erosion in the nation’s wealth, as problems and risks are ignored until crises occur, when the cost of mitigation increases dramatically. For instance, it is cheaper for a person to visit the GP with ‘pains’ than for the state to call out an ambulance when they have a heart attack; cheaper to maintain flood defences than rebuild New Orleans etc. Roads and bridges become more dangerous, art and culture are cut, teachers are replaced by TVs, cheap unhealthy food is consumed, investment in innovation lags behind, workers become more dependent on handouts, crime and social unrest lead to further decay; investment in security replaces creative forms of work.

But a consensus is presented in the media, of politicians, civil servants, intellectuals and sometimes celebrities, suggesting that there is no alternative, after all, debts must be paid, and many other justifications.

The Hayek / Austrian approach is in many ways the opposite of post-war Keynsianism. It says don’t spend money you don’t have, don’t intervene in markets because intervention was the problem and markets will sort themselves out. Saving is the real virtue, not spending. Use real assets for money, not credit.

The PIIGS countries (Portugal, Italy, Ireland, Greece & Spain), on the periphery of Europe had it the hardest. They didn’t even have the option of stimulus spending because they were in the Eurozone. There economies were forced to go at the same speed as Germany and France, and these countries are deep in depression now, even if you don’t see it in the news.

Iceland, when its banking sector collapsed, defaulted on its debt and started rebuilding its economy immediately. By contrast, Europe under austerity continues to increase its debt and real recovery seems very far off. In the UK, 5 years of public spending cuts failed to curb the rise of public debt. (Telegraph, 2014) A recent poster for forthcoming elections there boasts that the ‘deficit is halved’. The debt increasing at half the rate it had been is hardly grounds for optimism.

Both Keynesian economics of government intervention to put a bottom on the business cycle, and the Hayekian economics of letting the market sort things out, seem now to have been discredited by events, although of course there is always a case to be made that we never tried these things properly.

We believe that we are living through is something bigger and more complicated than the depression of the 1930s, and that the spend/save dichotomy breaks down when governments are saturated in debt, which was inevitable given the nature of money as ever expanding debt.


10 year history of the Swiss Franc

GATA, 2014


14. Living on the precipice

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  • More systemic leverage/risk

  • Nowhere to put money

  • Pension insecurity

  • Privatisation

  • Fear of war or collapse


There has been much discussion about regulating banks in the wake of the 2008 crisis, and indeed some things have changed. Some argue that these changes have increased systemic risk. Instead of a fractional reserve ratio, which was too easy to workaround, we now talk about capital requirements, which includes ALL the banks assets, not just deposits. This restriction though has been shown only to restrict new credit creation during the downswing of the business cycle when it is not needed. During the upswing, increasing profits and higher asset prices increase bank capital and therefore permit ever greater lending (Ryan Collins et al, 2011).

People with capital they want to invest are hard-pressed to find anywhere safe. While there are plenty of high-risk options, consider that bank interest is at record lows, the gold and silver prices are highly erratic, the housing markets are kept in a bubble because the mortgaged housing stock is a large part of bank capital, and outside of the high risk internet sector, small businesses are not often growing. The stock market is soaring but is also the first thing to suffer in a crisis.

This crisis is masked from the employed middle classes, but it’s that is because the losses are being moved around to where they are least visible. It will be in their as yet unrealised pensions (Real News 2015). This is not only due to the pressures to delay retirement ages and not link pensions to final salaries, but due to the impact on savings. As leverage increases and risk increases, the future value of money is very much at stake. Whether the correction comes in the prices of shares or whether the wealth evaporates through inflation, it is the most distant, least liquid forms of capital (such as pensions) which are easiest to ‘reallocate’.

Austerity also means privatisation as services owned by the government run for the people, are sold usually at a discount for cash to pay interest on debt. The new private owners can never be as interested in providing services as they are in making profit. Usually prices increase so that some people cannot access those services, which, being scarce become more ‘valuable’. We would add that such purchases are almost always financed by bank loans, which is to say these assets are sold off to people who don’t even have the money to pay, they just have a business plan to extract value from the enterprise faster than the rate of interest, and a bank who believes it.

For those who understand something of this situation, as perhaps you now do, additional fears can arise. What ended the great depression of the 1930s is hotly disputed, but some consider it was the second world war. Might some influential people see a massive expansion of military spending as a means to stimulate the economy? Since 2011 tensions have grown between the superpowers especially over Syria and Ukraine. With no obvious benefit to the peoples of the nations involved, mainstream media is delivering a new cold war and anti-terror message. People who think either massive war or a social ‘collapse’ is a serious possibility may be reluctant to put their money and energy into civil society

The indicators and models we use to tell us about the economy seem not to mesh any more. In the UK, for instance, we know that GDP is low but the stock market is high which makes little sense in the neoclassical models taught in schools. Could Quantitative Easing, a relatively new phenomenon, be to blame? Could the indicators and models themselves be manipulated, perhaps to instill a self-fulfilling sense of confidence, or to make certain actors look less bad? Or could it be that the wheels have fallen off the economy – that they still spinning but not carrying us forward? To what extent do we need new indicators and models, and to what extent a new economic paradigm?


Real News, 2015 –

Keen, S (2011) Debunking Economics – The Naked Emperor dethroned. Zed Books.

Jackson, J & B. Dyson (2013) Modernising Money: Why Our Monetary System is Broken, and How We Fix It, Positive Money, UK

Telegraph, 2014,


15. Currency war

Think: Who benefits from a ‘race to the bottom’?

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Watch this clip from The International
 A good way to raise money to pay off debt is to increase exports. A devalued currency makes a country’s produce cheaper to other countries and the incoming money helps the whole economy and each time it changes hands tax can be collected that otherwise wouldn’t be.

When all the countries are in debt at the same time, such as after a world war or a systemic banking crisis, all countries try to devalue their currencies. However currency values are very much relative to each other, so the devaluation can become a race to the bottom, or a form of all-out currency war.

Normally it means that relative to all the currencies going down together, the price of gold goes up, but in recent years gold and silver, instead of countering political currencies, are moving with political currencies, leaving some to allege that the metals markets are being manipulated to mask the general devaluation. (GATA, 2014).

Since 2008 many investors have sought a safe haven in the Swiss Franc which wasn’t saddled with Euro debt. But eventually that currency became too strong, exporters were suffering. So the Swiss Central Bank tried to keep the currency value down firstly by issuing new Francs to dilute the value, but recently they lowered interest rates to zero to dissuade foreigners from buying CHF. (BBC, 2014) Even now the CHF is worth 50% more against the British Pound than it was in 2006.

But this is just a spat between principalities in Europe. The main front in the global war is depicted on the slide. Team USA, you will remember, seems to have spent its gold and ‘temporarily’ switched to fiat in 1971, propped up by Saudi Arabia, OPEC and the petrodollar agreement. By spending newly created dollars abroad, USA can buy anything, on credit which it rarely has to redeem. The BRIC countries are starting to form their own dollar-free bloc, using their own currencies instead of the global reserve currency, and this is contributing to dollar’s lack of demand and reducing the US ability to appropriate foreign property. (Bloomberg 2014) The Federal Reserve is accused of bolstering the market value of the dollar by secretly buying back its own bonds (which other countries are dumping on the market) through proxy buyers (Washington Blog, 2014). China, Russia and others are acquiring gold, not only for settling debts, but to give them international credibility if or maybe when they wanted to issue a new currency. China is holding a lot of dollars because that is how the US pays them for decades of manufacturing consumable goods on which the US domestic economy is premised. That gives China a lot of power because they could crash the dollar price by flooding the market. However China is unlikely to crash the dollar because it holds so many!

As the post 2008 recovery appeared more and more like a mirage, attention focused increasingly on China as the engine for global growth, with Bloomberg even speculating that China was the new World Bank (Bloomberg 2014b). However in August 2015, China, joined the currency war when it devalued its currency. Bloomberg predicted that we are entering an age now, of global deflation. (Bloomberg 2015)

In all this political analysis when we treat countries as players we must remember that countries are made of real people who suffer and die in hot wars and currency wars. We cannot assume the people steering the ship of state will go down, like the crew of the titanic, and therefore that they are committed to the wellbeing of the state. We should not be surprised if the captain has his own lifeboat, and scuttling the ship is an option, albeit a desperate one!

Modern currency wars arise from and exacerbate the shortages of money which are built-in to the money system. They are hugely wasteful because the shortage of money creates unemployment and all the evils that follow from that.

Think: who benefits from a ‘race to the bottom’?


BBC 2014

Bloomberg (2014) China Offers Russia Help With Currency Swap Suggestion

Bloomberg (2014b) China Steps In as World’s New Bank

Bloomberg (2015) Deflation Ice Age Looms After Yuan Move, Albert Edwards Says

Washington Blog, Did the Federal Reserve Launder $141 Billion Dollars Through Belgium to Hide Massive Increase In Quantitative Easing? (2014)

Also see:


16. Banking Crimes

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 The ‘IBBC’ in the clip you just saw, is a thin cover for the Bank of Credit and Commerce International (BCCI), a notorious bank with connections to the CIA supported Afghani Mujahideen, the Medellin Drug Cartel, The PLO and many corrupt regimes of the 1980s. (Guardian, 2012) The bank was liquidated in 1991 and has become synonymous with massive abuse of international banking power. What is harder to determine, is where the power lay between the bank and its clients. Was the bank merely a pliant service providor, a mercenary selling services to the highest bidder, regardless of the political climate and in some cases, the law? To what extent might the bank have been calling the shots in those relationships, in its capacity as a credit provider?

New imageSince 2008 several large financial crimes have come to light, not all of which appear to have been resolved: • LIBOR (Economist 2012) • Robo-signing mortgage scam (CBS 2011) • HSBC money laundering (Huff Post 2012Guardian 2015, 2012b) • Goldman selling, to quote, ‘shitty deals’ (CBS, 2010) • Frontrunning and High Frequency Trading (Huff Post 2010).  To name a few.

References are provided in the slide notes. In general these crimes are made possible when the criminals have some political, financial or even personal control over the regulators and/or their external auditors. Some say that banks create a culture of appeasing would be regulators by promising them lucrative or powerful jobs in the future. Others say that a system of revolving doors enables banks to place former employees and existing stock options holders) all around the industry and the government. There are probably many other techniques.

Guardian, 2012a; Files close on BCCI banking scandal
Economist, 2012; The rotten heart of Finance
CBS News 2011; “Robo-signing” of mortgages still a problem
Huff Post 2012; Matt Taibbi: HSBC Committed The ‘Worst Behavior That Any Bank Can Possibly Be Guilty Of’
Guardian 2012b; HSBC, too big to jail, is the new poster child for US two-tiered justice system
Guardian 2015; George Osborne says HSBC tax evasion prosecutions not his job
CBS 2010; Levin Repeatedly References “Sh**ty Deal” at Goldman Hearing
Huff Post, 2010; Computerized Front Running: Another Goldman-Dominated Fraud


17. Too Big To Jail

New imageRolling Stone journalist Matt Taibbi called Goldman Sachs “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” This cartoon accompanies his more recent article, ‘Too Big to Jail’.

Meanwhile, trends since 2008 suggest risks of abuse and systemic failure are now higher, not lower, despite efforts from the Bank of International Settlements and its member regulators to protect economies from financial crashes. For instance, there is now

  • Higher than ever derivatives trading
  • Massive unregulated shadow banking
  • Laws in place in many countries to enable deposits to be seized after the next crash
  • Fears that ‘tapering‘ of cheap money could cause a new crash
  • Could the money and banking systems be so leveraged, so unviable, so risky, so insolvent, and the economy so slow, that the only way banks can subsist is through fraud?

When MF GLOBAL collapsed with funds unaccounted for and depositors out of pocket, people in responsible positions and receiving high salaries for being responsible, walked away with neither fines nor prosecutions.

Governments don’t have the resources to challenge banks in numerous expensive court, so they settle for fines which are a fraction of the criminal gains. The Rolling Stone magazine reported Assistant Attorney General Lanny Breuer as saying “In the world today of large institutions, where much of the financial world is based on confidence, a right resolution is to ensure that counter-parties don’t flee an institution, that jobs are not lost, that there’s not some world economic event that’s disproportionate to the resolution we want.” Author of the article Matt Taibbi interprets that for us, “In other words, Breuer is saying the banks have us by the balls, that the social cost of putting their executives in jail might end up being larger than the cost of letting them get away with, well, anything.” (Rolling Stone, 2013). Institutions have learned that they are somehow immune, and seem to be overstepping more and more extravagantly.

All this has been covered in the media, albeit briefly, but what we suggest, is that this enormous out of control undemocratic force derives from the banks power to issue our money, and that it affects every aspect of our society. So how much power really resides in banking?

Further reading: Federal regulator captured by client banks


Rolling Stone



18. Sovereignty

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Berlusconi survived many shocking scandals in his career, but when ‘the market’ judged Italy to be in danger of defaulting on debt, he was elbowed out in favour of a Goldman Sachs man who would ensure Italy would keep paying its foreign bondholders.

In 1992, a small hedge fund using borrowed money drove down the British pound faster than the Bank of England was able to buy them back to sustain the price. One trader who actually did that observed, “It was a bellwether moment in understanding the growing power of private capital markets in relation to government policy.” (Real news 2014).

The EU’s Maastricht Treaty of 1992 promised that “members would receive large benefits for a small loss of sovereignty.” (IMF 2014)

One aspect of that loss was the ability of individual governments to inflate away debts denominated in their own currencies, since all debt was to be denominated in a common unit and countries therefore had to stay within strict debt limits.

This turns out to be no small loss of sovereignty.

In 2011 the Guardian reported “Market panic over Italy’s debt crisis and political deadlock receded after Mario Monti, a respected former EU commissioner, appeared set to take over the reins of government from the outgoing prime minister, Silvio Berlusconi, and implement tough economic reforms.” and quoting Roberto D’Alimonte, a professor of politics, “The markets will be watching and ready to punish any deviation from virtue.” (Guardian, 2011)

When Greek president George Papandreou decided to ask his unhappy electorate about the next ‘aid’ package coming to ‘relieve’ the countries debt in 2011 (such aid always comes with political strings), he faced ‘an intense political backlash’ and within days stepped aside to be replaced by former Goldman Sachs and European Central Bank economist Loukas Papademos. (APCO, 2011)

These incidents led the Independent newspaper to run an article entitled “Goldman Sachs conquers Europe”, which points out that that bank has underwritten many of Europe’s bonds so would have a strong interest in those countries prioritising debt repayments over, say, social services. (Independent, 2011)

But worse was to come, in 2015 Greece elected a radical party, Syriza, on a ticket to end austerity. The new Finance minister Yannis Varoufakis started negotiating with Greece’s creditors to restructure the loan repayments which had been rubber stamped by previous governments. But the ‘Troika’ of institutions didn’t agree to negotiate a restructuring of debt. The conditions of bailouts included extensive privatisation and further reducing the welfare state. (Marketwatch 2015). Greece held a referendum and voted to reject the bailout conditions, but by the end of the week, the Greek Parliament had caved in to the creditors demands, and Greek austerity grinds on. Varoufakis later blogged about the ‘Defeat of Europe’, which we you may find an interesting read (Varoufakis, 2015)

At the heart of the idea of “sustainable development” is the idea that societies should improve themselves according to their own priorities, benefiting from international cooperation in the process. National sovereignty is therefore often assumed, mistakenly. In one of his statements we can actually agree on, financial historian Niall Ferguson (2008) explained whereas “We may think power resides with presidents and prime ministers in palaces and parliaments. Not so, real power lies in the hands of elite group of unassuming men in open plan offices. The men who control the world’s bond market.”

More: Stephanie Kelton explains about the Euro and sovereignty from a Modern Monetary theory perspective (first 15 mins)

IMF 2014
APCO, 2011,
Guardian, 2011
Independent, 2011
Real News, 2014
Marketwatch, 2015 Germans begin the looting of Greece
Varoufakis 2015 The Defeat of Europe,

19. Independence of Central Banks?

Princes of the YenThe Central Bank and international finance played a key role in the Japanese boom & bust.  Lessons can be learned by other countries, such as those in Eurozone. Watch last 10 minutes of Princes of the Yen


There are also questions about the allegiance of central banks in relation to sovereigns. We saw in lesson 2 that central banks started out by lending sovereigns money and how being beholden to a creditor is really a transference of sovereignty.

All around the world, countries which have overt political independence struggle to control their own money supplies. Countries are systematically indebted to the IMF which forces them to sell their infrastructure to foreigners, lends them hard currency to buy hi-tech from developed countries. Evgeny Fedorov, from the Russian Parliament, said that when Russia collapsed in 1991 their new constitution put the central bank under control of these foreign powers, and this has allowed foreign investors to buy up Russia while deterring Russians from getting credit in Roubles. (

It is sobering to consider that central bankers meet monthly behind closed doors, presumably to coordinate on monetary policy, at the Bank of International Settlements in Basel. Many reformers feel that matters of such importance merit public scrutiny and that citizens need to be mindful about what interests influence central banks’ policy. In our experience, this is a very difficult question to answer because of the complex structures and opacity of certain organs.

Detailed research by Professor Richard Werner, who had access to the workings of the Japanese Central Bank and to the IMF missions across Asia during the financial crisis in the 1990s, concludes that both the bubble and the bust in Japan were orchestrated by its Central Bankers for ideological reasons.

We recommend the full documentary Princes of the Yen, as it shows the power of credit creation in shaping economic outcomes, how a central banks dictated political and social changes while making everyone believe the power was in the government’s department of finance, and how the Central Bank’s agenda was much more aligned with foreign interests (American) than with Japanese interests.

The last 10 minutes of the documentary present concerns about the European Central Bank:


Werner, R. (2003) Princes of the Yen: Japan’s Central Bankers and the Transformation of the Economy, Routledge.


20. Malevolent intent?

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I am not so uninstructed and misinformed as to suppose that there is a deliberate and malevolent combination somewhere to dominate the government of the United States. I merely say that, by certain processes.. the control of credit also has become dangerously centralized… The great monopoly in this country is the monopoly of big credits. So long as that exists, our old variety and freedom and individual energy of development are out of the question. A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men who, even if their action be honest and intended for the public interest, are necessarily concentrated upon the great undertakings in which their own money is involved and who necessarily, by very reason of their own limitations, chill and check and destroy genuine economic freedom. This is the greatest question of all, and to this statesmen must address themselves with an earnest determination to serve the long future and the true liberties of men” 28th US president, Woodrow Wilson (1910)

“I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country; corporations have been enthroned, an era of corruption in High Places will follow, and the Money Power of the Country will endeavor to prolong its reign by working upon the prejudices of the People, until the wealth is aggregated in a few hands, and the Republic is destroyed.” – 16th US president, Abraham Lincoln (1865)

“He who controls the money supply of a nation controls the nation.”
– 20th US President, James Garfield

“Banks have done more injury to the religion, morality, tranquility, prosperity, and even wealth of the nation than they can have done or ever will do good.”- 2nd US President, John Adams (1826)
“From the time I took office as Chancellor of the Exchequer, I began to learn that the State held, in the face of the Bank and the City, an essentially false position as to finance. The Government itself was not to be a substantive power, but was to leave the Money Power supreme and unquestioned.”- UK Chancellor of the Exchequer, William Gladstone (1852)

We were warned.

Here are some quotes from important people in history that we withheld from Lesson 2. In preparing this course we found that many famous quotes on banking are actually made up! Here are some quotes that we have evidence to believe are genuine, but have not read the primary texts ourselves, apart from this quote by US President Woodrow Wilson in 1910.

“I am not so uninstructed and misinformed as to suppose that there is a deliberate and malevolent combination somewhere to dominate the government of the United States. I merely say that, by certain processes… the control of credit also has become dangerously centralized… The great monopoly in this country is the monopoly of big credits. So long as that exists, our old variety and freedom and individual energy of development are out of the question. A great industrial nation is controlled by its system of credit. Our system of credit is privately concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men who, even if their action be honest and intended for the public interest, are necessarily concentrated upon the great undertakings in which their own money is involved and who necessarily, by very reason of their own limitations, chill and check and destroy genuine economic freedom. This is the greatest question of all, and to this statesmen must address themselves with an earnest determination to serve the long future and the true liberties of men”

You are welcome to dig into the veracity of the other quotes.

A century of compounding interest and financial innovation since Woodrow Wilson warned about the ‘money trust’ a large amount of money, and power, appear to be even more concentrated in few organisations. One study in Switzerland calculated that 147 companies control 40% of the worlds corporate assets. (The Network of Global Corporate Control, 2011).  Many of these organisations have the same shareholders, from the same wealthy social circles, with some similar interests, and some similar ideas about how the world should be. They are able to steer not only such mountains of capital but also the intellectual and political milieu. This concentration of hegemonic power is a concern for advocates of social justice in all fields.

In the quote from Woodrow Wlison he points out he wasn’t assuming there was malevolent intent to usurp democracy. The question of intent often arises, and we are unclear as to how useful such debates are. After the documentary Princes of The Yen came out, we connected an IMF economist with Professor Werner, and a debate ensued about whether IMF officials have intentionally been seeking to undermine the sovereignty of peoples around the world.

It seems to us that if you inhabit what sociologists call a ‘discourse’, or story in which the West is at the forefront of expertise on banking systems, economics and development, and the rest of the world is less ‘modern’, then you are unlikely to question the legitimacy of your mandate to “help” other countries. Instead you may look for examples of problems with various local economic and banking systems in order to justify your interventions, and either ignore criticism or challenge it by picking holes in methodologies or individual protagonists. Therefore, rather than accusing particular individuals as conspirators and wading into a quagmire of speculation about their intentions, it is better to name incumbent interests and unpack their discourses.

What is clear to us from Wilson’s quote, is that the power to issue money is a fundamentally political and cultural power, and has been kept in the shadows of public life for too long.


Wilson, W. (1910) The New Freedom: A Call For the Emancipation of the Generous Energies of a People Author:


21. Money and the psyche

New image Studies indicate ‘money’ could influence apes behaviour similar to humans’. Now watch: Money and Life on GDP until 27:30 (4 mins)


Think: How does money, even when there is enough of it, affect your feelings and your relationships? Do you think this is the case for all types of currency?

We’ve spent much time talking about the big picture, but there is increasing evidence that money influences our personal psychologies.

One study published in Science called “Psychological Consequences of Money” finds that “The results of nine experiments suggest that money brings about a self-sufficient orientation in which people prefer to be free of dependency and dependents. Reminders of money, relative to non-money reminders, led to reduced requests for help and reduced helpfulness toward others. Relative to participants primed with neutral concepts, participants primed with money preferred to play alone, work alone, and put more physical distance between themselves and a new acquaintance.” (Vohs 2006)

Many, many other studies have been done: a quick search reveals that money:

We provide links to studies on all these effects in the notes to this slide.

In 1970, Classic economic theory held that offering cash to blood donors would increase the supply. However British sociologist Richard Titmuss published a comparative study of blood donation systems in United Kingdom and the United States and found that paying had the opposite effect. Most blood donors, he found, acted out of a sense of altruism. Unpaid donors in UK considered themselves generous civic-minded individuals. Cash payments in the US selected for poor, often unhealthy & desperate people and resulted in less and lower quality blood. (Titmuss, 1970)

The same ideas were applied by Swiss economists Frey and Oberholzer-Gee (1996), to the problem of locating a nuclear waste ‘repository’. They managed to persuade nearly half of respondents to accept the plant in their towns, but when they offered a financial incentive to the same people, support nearly halved.

The authors of Freakonomics, Stephen Dubner and Steven Levitt (2005) reported on a study where apes were taught to use money and their behaviour was corrupted in similar ways.

Work in this field is very valuable to advertisers, sales teams, public relations companies and lenders if it helps them to persuade new customers or predict crowd behaviour.

We have described in this lesson how there is more debt than money. How do you think this ‘felt’ scarcity might affect the subjects of the experiments?

In the next lesson we’ll look at how different forms of money might encourage different psychological responses.

Take a moment to think about how money, even when there is enough of it, might affect your feelings and your relationships?

After that watch a short section of Money and Life on GDP.

Further reading on neuroeconomics


Kathleen D. Vohs, et al., Psychological Consequences of Money, Science 314, 1154 (2006)

Titmuss, Richard, The Gift Relationship, 1970

Frey, Bruno S & Oberholzer-Gee, Felix, The Old Lady Visits Your Backyard: A tale of Morals and Markets, 1996

Stephen Dubner and Steven Levitt (2005) Monkey Business, New York Times, June 5, 2005

22. GDP Growth

New image“Our enormously productive economy … demands that we make consumption our way of life, that we convert the buying and use of goods into rituals, that we seek our spiritual satisfaction, our ego satisfaction, in consumption… we need things consumed, burned up, replaced and discarded at an ever-accelerating rate.” “Price Competition in 1955”, Victor Lebow

If charts showing the money supply have an exponential shape, it is because they follow interest. But how long can the economy grow exponentially?

Mainstream economists increasingly use the Gross Domestic Product as the most important economic indicator, they say that GDP needs to increase every year as if economic growth was a race. (Economist, 2011)

The GDP is the total transaction volume in a country, in other words, the total money supply multiplied by the average number of times a dollar, pound or euro changes hands [velocity]. GDP growth is therefore just a measure of money changing hands, without taking into account inflation, or whether the money was spent on creation or destruction (Guardian, 2014). While GDP is increasing, the economy is growing and calling more money into circulation through bank loans. Given that debts must be serviced, and there is compounding interest to be paid on such debts, then assuming a constant velocity of money, if GDP is not growing that means that as debts are paid off, the quantity amount of money is going down. A shortage of money to facilitate exchange slows the economy leading to a recession or depression. Although some economists question this process by suggesting a higher velocity of money might address the shortfall, or that a key factor is what economic activity is supported by new loans, there is evidence to support the logic we have described (Berg et al, 2015; Kimmich and Wenzlaff, 2013).

If GDP doesn’t show an increase, then politicians, economists and the media call for intervention in the economy. There is very little discussion in the mainstream about why we need growth, what is the cost of growth, and what are the limits to growth. To us, ‘falling behind’, sounds like scaremongering unless the growth race is really a veil over an arms race; we don’t see why that sentiment, and GDP as a measure should be guiding all economic policy.

The drive for growth itself creates other problems:

Planned obsolescence, in which producers deliberately make substandard products to ensure their customers return for maintenance, upgrades or replacements. This uses scarce resources, generates waste, and creates unnecessary work.

Powerful advertising which manipulates the subconscious mind, transferring unmet desires onto purchasable products, thus obstructing the possibility of healing.

Consumer culture, in which creativity and imagination are systematically starved. In their place ‘consumers’ appreciate superior things created by specialists and sold for money: art, craft, entertainment, food & technology.

In practice economic activity and hence GDP growth usually means the extraction and processing of raw materials. Up to a point, we appreciate how such activities improve our lives, but after that point it becomes ever clearer that our lives are no longer improved, and the surpluses are not reaching the people who need them most. These arguments remain elusive to mainstream economists

Even if there was no petro-dollar empire and no ‘Money Power’, this systemic flaw of our monetary system would still be challenging our ability to address the existential crisis of environmental unsustainability.


Economist, The race ahead (2011)

Inca Kola News 2010

Money and Life on Growth:

Money and Life on GDP:


Lietaer, B. et al (2012) Money and Sustainability, Club of Rome. Pp99

Berg, Matthew, Brian Hartley und Oliver Richters (2015): A Stock-Flow Consistent Input-Output Model with Applications to Energy Price Shocks, Interest Rates, and Heat Emissions. New Journal of Physics, Focus on Networks, Energy and the Economy:,%20Energy%20and%20the%20Economy.

Kimmich, C.  and F. Wenzlaff (2013) Structure and Agency in the Dynamics of Growth: A monetary macroeconomic equilibrium perspective on growth imperatives and stagnation



23. Recap: The problem of Interest?

In this lesson we have seen how interest:
  • charged on an existing stock of money presents challenges for sustainable development by incentivising people, organisations and societies to want money more than wealth, and to discount future value and costs
  • charged on the issuance of the money supply creates a range of far more difficult problems for economy and society than charging it on existing stocks of money. There is little discussion or rationale for such a system
  • earned on savings is necessary to maintain the value of people’s savings in a system experiencing inflation
  • can encourage saving, rather than in gold buried in the garden, In more fungible useful ways, allowing temporary transference of economic power to others through lending
Now watch Krugman vs Keen until at least 3 mins
Think: How could money and interest work better for the individual and society?

It’s good to save, isn’t it? Good for the individual, for the family and for society? It is what we are often taught when young. It appears to make sense at a societal level, if we think the saving of money leads to investment in value over the long term. Most people think their savings, for instance via their pension funds, are helping businesses with working capital to produce new technologies, buildings, products and services. In this lesson we have seen a far less simple picture about savings, arising from a deeper understanding of the role of interest, when charged on existing money, and when charged on newly created money.

So lets recap. In this lesson we have seen how interest:

  • Is charged on an existing stock of money presents challenges for sustainable development by incentivising people, organisations and societies to want money more than real wealth, and to discount future real world value and cost
  • Second, when interest is charged on the issuance of the money supply, it creates a range of far more difficult problems for economy and society than charging it on existing stocks of money, and with little to no discussion, or rationale, in moral philosophy for such a system
  • Third, interest earned on savings is necessary to maintain the value of people’s savings in a system experiencing inflation – a scenario currently under threat in low interest economies and of course
  • Fourth, that interest can incentivise people to save in fungible and transferable ways, rather than gold buried in the garden, thereby enabling a lending of economic power to others to do useful work.

So how could money and interest work better for the individual and society? Take a moment to reflect, perhaps write down some ideas. Do you think there is an easy answer? Or might something rather significant need to change in our money systems for this paradox of interest to be resolved?  Perhaps new forms of saving that are more connected to real wealth creation? We return this this in the next lesson.

Can economics help us identify new ways forward? Before moving on, watch this TV segment about a current row between economists on the nature and use of economics itself.


24. What’s wrong with economics?

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How are you feeling? Reached a crisis yet?According to IMF data there were 145 banking crises, 208 monetary crashes, and 72 sovereign debt crises between 1970 and 2010. These crises have his more than ¾ of 180 IMF member countries, many of whom experienced them several times (Lietaer, 2012).

Bernard Lietaer (2012) points out that if a car, plan or organisation had such a poor track record, there might be an outcry and the designers sent back to the drawing board. Furthermore, the number and quality of victims of a broken economy is much greater. It seems that banks, central banks and the IMF were unable to foresee or cope with any of these failures, nor have any alternatives been considered; the aim is always to return to ‘normal’.

And while economists such as Krugman and Keene seem to disagree on the fundamentals of their subject, catastrophic collapses and credit crunches continue as they have since the dawn of banking. The Bardi and Peruzzi banks in the 13th Century seem to have imploded spectacularly, apparently leaving the profession devoid of practitioners for half a century. Then the Medici bank imploded 2 centuries later. Even the Bank of England failed to redeem its own notes two years after its founding. Later, central banks played a role in spreading the risk from individual banks across the whole economy, so that now our financial systems are much more stable until a whole country, or hemisphere fails. Could it be that something about the way we do banking and money requires a periodic correction, purging or deleveraging?

Many reformers and even students are struggling to think outside of the small box of neoclassical economics which dominates the journals and prestigious posts in the profession.

2015 is a key year for international discussion on financing for sustainable development. This includes high level discussions on Financing for Development, negotiating new sustainable development goals for the next 15 years of international development cooperation, and the UN Environment Programme (UNEP) enquiry into the financial system. Yet basic misunderstandings about the nature of money and banking persist at the highest levels of these policy discussions. For instance, Jeff Sachs is a Professor of Sustainable Development, and advisor to UN processes on financing sustainability. He opened a discussion about the need for reform with the following incorrect statement about the way banking works. “The purpose of the global financial system is to allocate the world’s savings to their most productive uses. When the system works properly, these savings are channeled into investments that raise living standards; when it malfunctions, as in recent years, savings are channeled into real-estate bubbles and environmentally harmful projects, including those that exacerbate human-induced climate change.” (Sachs, 2014)

We appreciate the sentiment, and would welcome the main purpose of banks to be as he says. Yet their main role, as you now know, is not intermediating savers and borrowers, and perhaps never was. Instead, they create new purchasing power through credit.

In addition, we see no engagement on the systemic issues we have described in this MOOC within the discussions of the UNEP on financial reform, despite groups like Positive Money seeking to contribute. Though its not acceptable, this lack of insight is understandable, due to the misinformation and mis-education about money and banking that persists today. Might that be intentional? Nobel Prize winning chemist and father of nuclear fission Frederick Soddy, I quote, “thought that, as a scientific man, I ought to know something about economics. So I studied the money system for two years and could make nothing of it. Then, one day, the truth dawned on me. What I was studying was not a system, but a confidence trick.”

And here is another. Raymond F. DeVoe, Wall Street analyst and author of “The DeVoe Report”, once wrote “Economics is war pursued by another means”

For myself, Matthew Slater, at present my own theory is that the economy is a playing field, where the banks are the players, politicians are the powerful pieces and we are the pawns; And economists? The ones who say what the banks want to hear are rewarded and promoted. The history of money shows me that orthodox economics is not a science, it is a story to keep us from interfering in a game without rules, where the winner takes all.

For all the reasons we’ve explored, something very different needs to emerge. What that something might be, and how to birth it, is the subject of lesson 4.

Further reading: Time to stop this pretence – economics is not science


Krugman vs Keen

Money and Sustainability, Lietaer et al, 2012 pp51


Sachs, J (2014) Financing Climate Safety,

25. Re-capping on 3 lessons

Before undertaking your assignment, watch an 18 minute presentation by Professor Jem Bendell that re-caps on some of the key themes of the course so far:  The Future of Finance (18 mins): (18 mins)

We, your tutors, believed in 2008 that there would be no substantial and sustained recovery, ever. The mainstream media did not cover the underlying monetary causes of the crash and the enormity of the bubble that had popped, as alternative media did. As people who disliked the mainstream media’s superficial rendition of economic and political news, we were looking elsewhere. It is alternative, independent, often ‘radical’ media that gave us enough doubts to then explore contrarian views in a range of academic disciplines. Such media may make mistakes, and an academic rigour is necessary to scrutinise claims. But the general view has been borne out.

26. Assignments

Option 1 – Imagine an elite anarchist hacker cell created a virus which overnight wiped out all electronic records of currency of all types, including deposits, loans, and many derivative contracts stored electronically. Imagine one year later, you are cycling around near your home. What would things look like? What would people be doing? Write no more than 400 words describing the scene, with some comments at the end of your description on why you think this would be the situation. Be as creative, descriptive and poetic in your prose as you wish.

Option 2 – Choose one of the many problems we described as arising from the current monetary system and in no more than 400 words make your argument about why our analysis is limited, or unhelpful or just plain wrong.  In making your case, reference all your sources.



In advance of doing your assignment, you may find listening to this programme to be of interest: Teaching economics after the crash: Aditya Chakraborty reports on the student fight to reform their economics education.


28.Further reading & Sources

More on Margrit Kennedy (R.I.P.)

Unwelcome guests episode on BCCI, disgraced bank of the CIA

Cobden centre, a blogging platform for Austrian Economists

First parliamentary debate on UK money creation in 170 years

New Economics Foundation: Inequality and Financialisation

Money as Debt argues that all money is promises, even Gold money

Hudson, Michael, The Bubble and Beyond (Book)

Frederick Soddy, The Role of Money (PDF)

Rickards, James, Currency Wars (Book)

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