Debt Money

The entire foundation of our society, as revealed through our history, is corrupt. Do you really think that a fresh coat of paint here and there will ever be enough to fix it? The ones who invented debt knew that it would subjugate us. Stop living THEIR dream and start building the alternative systems we need to set ourselves free.

The concept of debt has two primary functions. One is financial, the other is organizational. The financial purpose is widely discussed. Debt conjures an enormous, never-ending transfer of wealth to privileged lenders via interest payments. Since all money originates as debt, any money that remains in the marketplace is bearing interest for someone somewhere. While some individuals may be able to pay off their own loans, other loans must spring up to replace them or else the total volume of money circulating in the economy will shrink to an insufficient level to keep the game running.

Sovereign governments have the constitutional right to create their own money supply based on whatever backing they choose. Throughout history there have been many locations and periods where non-debt money was created and used successfully. Notable instances include the United States during and after the American Civil War, Germany in the aftermath of World War 1, China after the Chinese Civil War. Astute observers will notice that in all these cases non-debt money was essential to rebuild society after the devastation of war.

In 1913, the privatization of money creation advanced considerably with the formation of the Federal Reserve, a privately owned central bank. From that moment on the creation of most government money involved borrowing with interest from private lenders. National governments did continue to produce a dwindling portion of the national currency from 1913 up to the mid 1970s. Western countries built most of their public infrastructure during that period using government created, debt-free money. Airports, highway systems, schools, hospitals were affordable only because interest payments were excluded from the cost. Government deficits remained low during this remarkable period and budgets were constrained by available national gold reserves.

In 1971 the USA went off the gold standard which gave the central bank permission to issue unlimited amounts of debt money. Government deficits soared into new levels and interest payments began to choke off government spending on other social programs. Rather than facing the truth and explaining to the voting public how such a massive transfer of wealth to private lenders was negatively affecting program spending, governments just went on spending as if budget deficits weren’t that important. Cutting popular social programs posed more of a risk to getting re-elected than rising interest costs. The political strategy was always to blame the last government for the problems and leave it to the next government to fix them.

Government debt lead to much higher taxation levels and many new taxation schemes, but it was only part of the problem. Now that money creation had been privatized and gold reserves were abolished, corporations jumped on the bandwagon. Private banks, investment brokers and even retail corporations could now issue consumer credit. Low interest rates were used to entice people to sign loan agreements that would continuously enrich lenders. But more importantly, excessive lending enabled the second function of debt to kick in.

By far the most important aspect of a debt-money system concerns ownership. The public lives under the illusion that they own the assets that they have financed. This is wrong on two levels. First, until loans are fully repaid, the lenders own the first rights to the assets financed. Miss a loan or lease payment and you will quickly see how true this is. This first right reveals the true owners of our personal assets. In theory, the individual borrower is the owner, in reality however the borrower is just renting the use of the asset from the financier. The title to an asset remains the property of the lender until the loan is fully paid back. As most major residential and commercial assets must be re-financed when they are sold to a new “owner”, lenders pretty much maintain the ownership and control of all the important assets in society.

Second, in order to sustain the debt-money scam, the government must have an unlimited power to tax. This is why the US income tax act was created in the same year as the Federal Reserve. The only real value that backs the debt-created government money today is the power of taxation. Even if you have finally paid off all of the loans that you required, or you were lucky enough not to need to borrow, the government can still cease your assets if your taxes are in arrears. Also, eminent domain gives the government the first right to take or use your assets anytime they deem that it is necessary for “national security” or the “public good” of the country, state or province. Financial ownership is a tool used to keep you working hard and compliant with laws and regulations, but a deeper more troubling form of ownership arises from this.

A debt-based monetary system also creates an economic ownership of the people themselves. Requiring that all productive activities or investments must be financed upfront before any new asset creation is allowed transfers control of what individuals can do with their time on earth and channels their activities through the pre-existing structures of control.

Theoretically, money is supposed to merely represent the underlying value of the assets it represents. An amount of money equal to the value of the asset needs to exist in order for the asset to be traded in the marketplace. As an asset is used it wears out and its value is depreciated accordingly. This depreciation rate should equal the rate at which the money that represents it is taken out of circulation. Debt is used to bring new money into circulation, loan repayments reduce debt and take existing money out of circulation.

Now pay attention, here comes the important part. There is absolutely no need to finance the cost of new assets prior to creating them. What? Don’t be ridiculous you say? Here’s why…

As new assets are being built (think of a housing project) new wealth is being created. New money to represent that wealth must also be created in order to have sufficient money to trade it in the marketplace. Our current system uses debt as the new money. A new loan based on the anticipated value of the asset is created with a few keystrokes and signatures at the bank. New money comes from out of the thin air and is deposited into the borrower’s account. Magic. The bank now owns all of the productivity that will be created by a team of employees hired by the borrower.

How much depreciation of the soon to be created assets have occurred at this point? Zero!

So why is there a need to have the money available to pay the entire value back? There isn’t any!

If money creation was automatically tied to productivity and new asset creation then only the work itself would create the required new money and the employer would only be responsible for distributing it into the workers’ accounts. The employer would not need labour costs up front at all because the labour itself would be the basis of the new money created… not an imaginary bank loan.

Likewise the materials and resources from other suppliers that the contractor uses to complete the work are not depreciated either. They are just transformed from one state into another. So why should they be paid for as if they were already 100% consumed? They shouldn’t! Their value should be included into the accounting of the value of the finished assets (houses) but there is no need for the contractor to have any money upfront to pay for zero depreciation. The value of the supplies shipped should simply be recorded as a transfer from the shippers bank account to the contractor’s account (much like today we think of a credit balance). Once the asset is “purchased” by an end-user/consumer who begins to actually use the asset and wear it out, then and only then should the depreciation amount start to be repaid.

So the important part is this… New creative projects and productive cooperative endeavours could be initiated by anyone and everyone without being restricted by the availability of pre-approved capital. No prior third-party permission would be able to stifle the creativity and productivity of any individual. People would be free to choose how they wish to share their skills and talent with society. Without debt, people would not have to stuff themselves into existing employment vacancies but could choose to cooperate in ventures that truly interested them and valued their involvement. They would no longer have to rent themselves out to survive in a competitive, corrosive, anti-social marketplace. In other words, people would finally get to own their own lives.

The entire organizational control structure of the economy can be transformed with the elimination of debt. A free society built entirely on the consensus and cooperation of individual contributors will arise. As an added bonus, we won’t have to destroy each other, or the planet we share with all other living species. Please spread this idea around to help others recognize that the possibilities that arise from eliminating debt-based money are truly staggering.

Part three of this series will look at profit.