Reviewed by Dick Distelhorst, AMI Burlington, Iowa Chapter leader
In this book Lietaer defines the problem of bank created debt-money, quite well. Unfortunately, his solution is to ignore the problem and use local currencies to ameliorate the huge problems caused by allowing the private creation of fiat money with an interest charge attached. Nowhere in the book does he even suggest that fractional reserve banking should be eliminated and that the government should create its own money. Instead of proposing monetary reform, he proposes monetary supplements.
Here are some quotes from the book which do help to define the problem. He then spends most of the pages of the book to discuss various “local currencies” and how they operate. While these can be useful in emergencies, they are certainly not a solution to our monetary problem.
The secret of creating money is being able to persuade people to accept one’s IOU as a medium of exchange.
“A central bank accepts any government bond that the public does not buy, against which it issues a cheque for the corresponding amount. This cheque pays for government’s expenses, and, in turn, the recipient deposits it in his own bank account. That is when the magical ‘fractional reserves’ come into play. For every deposit that any bank receives, it is entitled to create new money, specifically, in the form of a loan to a customer of up to 90% of the value of the deposit…..what started as a $100 million checque issued by the central bank (called ‘high powered money’), by the time it works its way through the commercial banking system, has enabled banks to create up to $900 million of new money in the form of loans. If you understand this ‘money alchemy,’ you have understood the most arcane secret of our money system.”
Money and debt are therefore literally the two sides of the same coin. If we all were to repay our debts, money would disappear from our world.
“We all live deeply enmeshed in a planetary money machine, most cogs of which we are unable to perceive, let alone understand and manage…..our lack of awareness explains some strange facts. For instance, we have the capacity to provide enough food for everyone on this planet and there is ample work as well, but obtaining the money to pay for it all is another matter. This means that the key to sustainable abundance lies within the money system itself, the very system about which, ironically, we have remained largely unaware.”
“The creation of money is largely invisible to the untrained eye and seems almost miraculous. Most people, when they find out where money really comes from, are as disbelieving as some children when they first find out where babies come from. ‘How could this possibly by true?’ they wonder.”
“The money system is like a treadmill that requires continuous economic growth, even if the real standard of living remains stagnant. The rate of interest fixes the average level of growth that is needed to remain in one place.”
Unfortunately, after pretty well defining the problem, he avoids the obvious solution – change the money system so it works for us instead of against us – instead, he proposes “bandaid” solutions – the use of local area currencies.
Following is what Bernard wrote about monetary reform on page 214 of his book:
“Why not a radical reform?”
“Given the problems of the conventional currency system, why not simply replace it? Why propose only ‘complementary currencies’ which are designed to function in parallel with conventional money, leaving in place the prevailing bank debt system?”
“The short answer is that in every generation of economists, there have been unsuccessful proposals for replacing the official money system with ‘better’ ones. The lock-in between the political, legal, banking, and institutionalized monetary system has proven invariably too tight to break, even when the proposals came from the most influential economist of his time (such as Keynes’ proposal for his Bancor) or when they were supported by substantial popular movements (such as Geselles’ friewirtschaft (‘free economy’) movement between the two wars).”
“Just a reminder: the objective here is not to design a theoretically perfect system, but more modestly to identify potentially useful monetary tools that have a fighting chance to be implemented.”
In other words, he says reforming the existing system is impossible, so don’t even try. The “radical Reform” being proposed by the AMI would simply restore the system that people think we now have. AMI proposes that our money be issued by our government. Thats what most people think we have now. AMI proposes that banks receive deposits and then loan out those deposits to others, not create new money. Thats also what most people think banks do now. How radical is that?
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