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This review is from: Modernising Money: Why Our Monetary System is Broken and How it Can be Fixed (Kindle Edition)
This book explains, in painstaking detail, just how badly the current economic system serves ordinary people (and how well it serves the very rich). It shows very clearly that booms and busts, inflations and deflations, feasts and famines in money and credit availability are all man-made phenomena, and that all these instabilities CAN BE ELIMINATED given the political will to do so.
My only complaint is that the book has no index! It is very frustrating to know that something is said somewhere but to be unable to find it later - especially in discussing or arguing the merits of the proposals with others, so I really hope that future editions will include a comprehensive index.
As the book so clearly explains, at the heart of the problem are commercial banks that mislead politicians and public alike into believing that they 'lend' money (i.e. take existing money from somewhere else in order to lend it), when in truth they 'create' money by simply writing it into the account of a borrower in return for a promise to repay. What they are doing is a modern version of what fraudulent goldsmiths did hundreds of years ago - they issued more (many more) receipts for gold than the gold that they held, lending out the receipts at a lucrative rate of interest - a very nice and thoroughly dishonest not-so-little earner. The public used these receipts for trading purposes as they thought they were backed by gold and were much more convenient than carrying around gold itself. Rather than stamping out this process, successive governments around the world have colluded with the banks, first by setting up central banks and then ever more regulations of increasing complexity to try to contain the inherent instabilities in the system. Their conspicuous lack of success in this regard is very clearly illustrated by the current world recession - which is just the latest in a long line throughout history.
Some of the devastating effects of the current system, which operates throughout the world, include the following:-
1) In developed countries there is continuous transfer of wealth from ordinary working people (people who suffer from debt) to the rich (people who benefit from debt), making wealth inequality ever wider, eventually risking civil unrest.
2) In developing countries there is continuous transfer of wealth to rich countries, causing deep poverty, widespread death (especially of children and infants) and immense human misery.
3) The fact that banks create money by simultaneously creating debt, and additionally charge interest on that debt, means that the amount of money in circulation is always exceeded by the amount of debt, which must be serviced at great cost by the debtors.
4) Massive subsidies are enjoyed by banks in the form of loan interest payments from individuals, businesses and even governments, who allow banks to create money for them and then borrow it at interest, payable from taxation.
5) The need for ordinary businesses to service high levels of debt (and pay their workers enough to service their debts) necessitates their having to compete fiercely in the marketplace, so that societal concerns such as global warming; pollution; biodiversity; conservation of energy, water and other scarce resources and so on are all subordinated to the imperative of staying in business and making money.
During economic booms banks create ever more money (and debt) to fuel both the boom and their own profits, whereas during economic busts like we have now banks destroy money (by absorbing more repayment of debt than creation of new money) thereby deepening the busts. In effect banks provide positive feedback to the economy (i.e. they provide more money when there is already too much, and remove money when there is too little), which is the very reverse of what is really needed, and it is this that causes severe instability in the system. Unfortunately the inflation caused during booms doesn't show up in measures such as CPI or RPI because of banks' preference to lend for the purchase of existing assets like land, property and the stock market, on the security of those assets, rather than to business enterprise, on the security of (less sure) future income streams. Hence such assets inflate considerably, while growth of GDP is not helped at all.
The book explains very clearly that there really is an answer to all these evils, and it's not complicated or even painful. It also explores the various objections to the reform proposals and shows, again very clearly, that they are either completely without foundation or have very minor effects. The reforms will stop the subsidies to the very rich, so they are bound to be fought ferociously if they ever become a real threat. As yet they don't seem to be, but the more that ordinary people and politicians who are fired with a genuine public spirit (are there any?) understand and back them, then the more the momentum for change will build.
Well done Andrew and Ben, you have created a tour de force.