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We Used to Have Debt-Free Money

By On · 12 Comments · In Blog, Uncategorized

A Drop from 46% to 2.6% 

The proportion of money created free of debt dropped from 46% to less than 3% since 1946.

Over past months I have been writing of a need for the economy to be firmly based upon debt free money instead of the present high dependency upon debt creation now exceeding 97%.

The most telling statement I have read in the past few days was “In Britain today, out of a total money supply of £2,165 billion (March 2011), £57 billion is not based upon debt.” This amounts to 2.6% of the total.

In 1946, the notes and coins, the debt free element within the money supply was 46% of the total”.

This dramatic increase in debt creation of 43% over the past 65 years can be readily explained by the fact that paying with hard cash has fallen out of favour and replaced by an increasing use of cheques and more recently credit cards.

The less cash in use, the less hard cash the banks needed to buy from the Bank of England at full value, which formed part of a bank’s capital base. This means that a large proportion of a bank’s capital is no longer rooted in the holding of real money, namely the metal coins and currency notes of the realm.

Because the use of cash has been largely replaced by cheques and credit cards, there it is necessary for the wide balance between bank created debt and debt free money to be restored. This would be achieved by the Bank of England not only having responsibility for the creation of currency notes and coins, but by being able to also create a debt free money supply.

This debt free money would enter the money supply through the Bank of England drip feeding money into the Government’s bank account in a controlled way thereby maintaining an overall economic balance between debt and permanent money.

Daily financial newspaper headlines make it imperative for Government Ministers to urgently face up to the facts and have the courage to make the desperately needed economic changes.

Up to now Governments around the world have appeared like headless chickens!

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Anthony Miller (Guest Author)

Associate and Hon. Fellow of The Institute of Indirect Taxation, Retired Accountant, specializing in Taxation Appeals for both general taxation and VAT, a founder member of the Institute of Indirect Taxation, providing qualifications for both private VAT Practitioners and HM Customs VAT Officers, leading to their qualification as Associates.

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  • Lobma Thundrup

    Have you come across the articles by avi Batra,http://www.truth-out.org/occupy-wall-street-movement-and-coming-demise-crony-capitalism/1318341474

    He has opened my eyes to how now capitalism works. But although he doesn’t see the need to change to the system root and branch,but just advocates o free market capitalism rather then the present absolute greed of the few, he still makes a lot of sense.

  • Mike

    That really is a colossal shift, colour me flabergasted.

    The amount of narrow money in circulation should be relative to GDP though?

  • John Morrison

    It is good to see a clarification that in the past it was considered sensible for a nation to issue its own money. I remember receiving my pay packet which contained real physical notes and coins, now that was real money. It also had the advantage that as you spent it, you could see exactly how much you had left.

    I would like to point out to those with an economics background the exact nature of the assets and liabilities equation in the issue of national debt free money. When it is issued the debt free money creates an asset in the hands of those who hold it and simultaneously a liability on the nation to exchange it for goods and services. That is the entire fully balanced assets and liabilities equation. The government only needs to issue the money mindful of the goods and services available to buy with it. There is no need to acquire any further assets nor to invent or participate in any further liability.

  • Allan R Manchester

    There never has been, and there never could be debt free money. Money is not money until it is borrowed into circulation. It takes a bank credit to pay down a bank debit which is the collectable loan that created the money circulation, and takes money (bank credit) out of circulation.

    • João Granchinho

      That’s how we allow it to work today, no doubt Allan. It doesn’t have to be like that. Why private creation of money? Why not public?

    • John Morrison

      Allan – This seems a very perverse view. Why do you believe so much in bank mysticism instead of simple reality ?

    • Simon

      A previous poster drove many of us mad with detailed explanations of debits and credits and I used to do accountancy ! Lets look at how money and banking work in an engineering sense, see what actually happens, and improve on the current debt based system which is obviously not working – worse it is causing huge economic and social damage.

    • Anentropic

      You’re describing the current system, not the only possible system. Explaining an alternative is the point of this website… read on!

    • John Baker

      You are right that you cannot have promise money that is not debt based.

      However, you can have commodity money that is non debt based.

      Both systems have pros and cons. Both have dos and dont’s if you expect them to work without exploding. Both these systems can be corrupted.

      The weirdest thing is that over the ages humans tend to hover between these, switching between commodity and promise monies when one goes horribly wrong due to corruption, they assume the other must be better. This is just the grass is greener effect.

      The truth is that all money systems need administration and that requires trust. The only real solution is to get corruption out of politics.

      It seems like in 1949 they had a pretty much 50/50 split between commodity and promise money systems.

      This actually seems ideal to me as commodity monies tend to work out better for governments and promise monies work out better for private individuals and business.

  • http://none Bill Clarke

    Allan – Are you saying that cash is not money because it is not borrowed into circulation?

    If the banks need cash they have to buy it. It’s not borrowed.

  • http://kibitzer-truthseeker.blogspot.com Stan

    The answer is to get rid of interest-bearing money altogether. The moneychangers should not be allowed to run the world any longer. They’ve done their dash – and look at the results.

    All we need to motivate ourselves to provide goods and services to one another, and give of our best in doing so, is the feeling of gratitude to our Creator for life with meaning. All else is secondary.

    Of course, if you still haven’t accepted that reality about life – that there is Plan in and Purpose to it; that it has meaning, beyond just in and for itself only – then you still have a problem, to come up with a workable motive for people to do away with interest-bearing money. All you atheists out there are holding up progress on this front. I suggest you give this matter serious thought. And like, now. Tempus fugit.

    • http://www.corfudirect.eu Herman Mittelholzer

      I recall making just such a suggestion to the ICB in May this year, and also suggesting a way that this debt-free money could be distributed using the current banking system.

      I also recall getting no response or reply from the ICB, not even an acknowledgement, but this came as no real surprise since we all knew that the ICB was a government PR sham.

      However, my suggestion, called ‘The Third Way’ was published on the Banking Commission web site and you can click the following link if you might like to read it.

      http://bankingcommission.s3.amazonaws.com/wp-content/uploads/2011/07/Mittelholzer-Herman-Attachment-2.pdf

      I understand that several good ideas were presented to the ICB for them to consider, and all were systematically ignored, including the Positive Money one, so I was in good company!

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