From Bill ： On Monetary reform

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A speech by Alistair McConnnachie
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A speech by Alistair McConnnachie

Prosperity (September 2005)

The following speech was delivered by Alistair McConnachie at the
American Monetary Institute's 2005 Monetary Reform Conference, at the
Essex Inn, 800 South Michigan Avenue, Chicago, on Thursday 29th
September 2005, at 6 pm. It was published in the September 2005 issue
of Prosperity.

Thank you. I have been asked to speak about the Bank of England, and
its place within the monetary system of the UK. After that, I want to
tell you about the monetary reform which we in the United Kingdom are
proposing.

Tomorrow we are going to be hearing about the US Federal Reserve, from
Mr William Hixson - author of the two wonderful books, Triumph of the
Bankers (1993) and A Matter of Interest (1991), and one of the
founders
of COMER, the Canadian-based Committee on Monetary and Economic
Reform,
from whom we will also be hearing this evening.

Now, the Federal Reserve is differently constituted from the Bank of
England, but given the political will, both institutions are able to
be
reformed to deliver the results which we as Money Reformers are
seeking.

"Given the political will" - creating that political will, is the real
challenge for us.

The Bank of England

The Bank of England is Britain's Central Bank. Just as individuals and
businesses keep accounts at commercial banks, so commercial banks and
government keep accounts at the Central Bank - in our case, the Bank
of
England.

The Bank of England began in 1694 when King William needed money to
fight a war against France. A company promoter by the name of William
Paterson came up with the idea of a bank. It would raise GBP 1.2
million and then lend a million to the Crown, at a high rate of
interest. In return for the loan, it was incorporated by Royal Charter
as the "Bank of England" which became the government's banker. Thus
began the British national debt.

It wasn't until 1946 - 252 years after it was first established - that
the Bank was nationalised and brought more firmly under the control of
the British government. In practice this didn't change very much
although it meant that the State acquired all the shares, and that
Governors and Directors were to be chosen by the Sovereign on the
advice of the Prime Minister. Further, the Chancellor of the Exchequer
reserved powers to give the Bank formal directions.

Richard Greaves has written a very good article, which I commend to
you, in the January 2005 issue of Prosperity {1}, "Shedding some Light
on the Bank of England". Copies are at the back of the hall, and I'm
using his research when I tell you that:

Today, operating as it does as the bankers' bank, it is to the
commercial banks (that is, the High Street banks) what the commercial
banks are to the public.

Just as we may deposit money with commercial banks, so commercial
banks in turn keep deposits with the Bank of England. The amount of
cash that a commercial bank can buy up from the Bank of England to
meet
its customers' cash withdrawals is limited to the amount of deposits
it
has in its account at the Bank of England and/or what it can borrow
from the Bank of England or from other banks. Commercial banks borrow
from the Bank of England in exactly the same way that individuals and
businesses borrow from commercial banks ...

However, it is much more significant to note that whilst the Bank
of England is now state-owned the fact is that our money supply is
once
again almost entirely in private hands, with 97% of it being in the
form of interest bearing loans of one sort or another, created by
private commercial banks.

Indeed this is now where the real power resides - with commercial
banking.

The Bank of England is now essentially a regulatory body that
supports and oversees the existing system. It is sometimes referred to
as "the lender of last resort" in so far as one of its functions as
the
bankers' bank is to support any bank or financial institution that
gets
into difficulties and suffers a run on its liquid assets. In these
circumstances, it is not obliged to disclose details of any such
measures, the reason being so as to avoid a crisis in confidence -
confidence being something on which the current system is very
dependant.

However beyond that, it is no longer a major player in the
lending/money creation market. Its annual accounts reveal that its
loans and profits are only a fraction of those of a major commercial
bank such as Barclays, and it only holds a very small amount of
government stocks, so it is no longer really lending to government
either - that function has largely passed to the merchant banks.

Most of its profits come from what is known as the "issue
department" - the department of the bank which is responsible for
printing and distributing bank notes and coins. These are purchased by
the high street banks to meet their customers' demands for cash and
the
various banks have their accounts at the Bank of England debited
accordingly. Basically, the profits from this operation belong to the
state and are transferred to the Treasury, thus being added to the
public purse.


The Profits From The Note Issue Go To The Public Purse

The Bank of England Annual Report 2005 states that for the year
2004/2005, "the profits of the note issue were GBP 1,618 million
(2003/2004 GBP 1,234 million). The change was the net effect of more
notes in circulation on average during the year and higher interest
rates. These profits are all payable to HM Treasury." {2, page 34}

So we see here that the Bank of England is quite open about the fact
that the profit from its note issue - that is, the difference between
what it earns by selling the notes at face value to the commercial
banks, minus its cost of printing, minting and distributing them -
goes
to the Treasury.

That is, the profit goes right into the public purse as an effective
debt-free input - this benefit is traditionally termed "seigniorage".

Now imagine if everyone was using notes and coins instead of
electronic
forms of money. The debt-free benefit to the public purse would be
immense! It would be in the billions and billions of pounds, and taxes
would fall massively.

Indeed, in 1948, around half of all money in circulation (46%) was
notes and coins which were created debt-free by the government, with
the profits going directly to the public purse.

However, as the demand for electronic, cheque book and credit card
money has risen, the demand for notes and coins has fallen.

This means that most money circulating in society is now private bank
debt-based money in electronic and cheque book form - around 97% of
money circulating.

As a result, the private banks are making vast profits from this
situation. And because the government has an ever-declining source of
seigniorage revenue, our taxes go up to repay the money which the
government has to borrow from this private banking system!

At the same time, more and more people are swallowed up in ever-rising
levels of private debt.

Over the years, the Government has simply ignored what has been
happening to the money supply. It has ignored the fall in the demand
for notes and coins and its subsequent loss of seigniorage.

In other words, it has shamefully abdicated its traditional
responsibility to create a supply of money, publicly, and debt-free,
for the people.

As Money Reformers, we are saying that in addition to regulating the
banking system, it is the responsibility of government to maintain a
basic stock of money in circulation which is free from debt at its
point of creation.

If society enjoyed the benefit of a 46% debt-free money stock in 1948,
then there is no reason why we shouldn't continue to enjoy such a
benefit today - although this doesn't necessarily have to be in the
form of notes and coins. It can be in the form of electronic money,
created debt-free for public purposes.

Otherwise, we will continue with the situation today where the private
banking system is acting as the national money supply mechanism and
levels of debt will continue to go through the roof, along with bank
profits, and our taxes!

Focusing Our Message

So what do we propose to do about all this?

If we want to take an idea into the mainstream, we need to concentrate
on one of the core issues, and we need to come up with a practical
policy to apply it, which is politically workable ... in the
circumstances of the moment.

Focusing in this way is a core strategy of the American Monetary
Institute.

If we don't have focus, then the message won't take off and fly. So,
while I am not going to speak about the specific reforms suggested by
the American Monetary Institute, I want to tell you about what we in
the UK are proposing.

The Policy Which We Promote is ...

what we call The Prosperity Proposal: Publicly-created Debt-free
Money.
Slogan: "Money for the People, and by the People: The Democratic
Imperative".

So, What is Publicly-Created Debt-Free Money?

It is money created by the government of the day, debt-free.

That is, debt-free! Not "interest-free". Not "low-interest". But
debt-free - money which does not have to be paid back.

Money Reformers say the government has the power, indeed the duty and
the responsibility, to create money debt-free, instead of running to
the private banking system for it.

We have seen that it already does this via the note issue.

It needs to extend that principle to other forms of money, such as
electronic-based money.

We call this money, "publicly-created money" since it is created on
behalf of the people of the nation by their elected government. It
belongs to the people of the nation, and it works for the benefit of
the people of the nation.

It is not intended to benefit the banking system or any private
interests - as so much government borrowing does today.

Institute a Public Money Department at the Bank of England

Practically speaking, our innovation proposes an extension to the Bank
of England - which we could call the Public Money Department - which
would be chartered to create debt-free money for the exclusive purpose
of financing investment in Public Fixed Assets - that is, in things
like maintaining the schools and hospitals.

This "publicly-created money" would be a debt-free input of money to
the Treasury, just like the production and sale of the notes and coins
represents a debt-free input to the Treasury - of, as we have seen,
somewhere around GBP 1.6 billion last year.

The means is innovative, but the principle of debt-free seigniorage
enjoyed by the public purse, is long established.

As we have seen, it has simply been eroded by the evolution of the
private banking system whose bank-created money has come to exist
primarily in non-cash form. That is, in electronic form, transmitted
by
information technology.

Similarly, our innovative "publicly-created money" can be created as
non-cash money. It does not have to be in the form of notes and coins.

People should not have to suffer in an increasingly usurious and
debt-soaked society just because the demand for notes and coins has
fallen.

It is the responsibility of the government to maintain the debt-free
money stock for the benefit of the people.

No other innovation could benefit so many and harm none. The basic
research is done and recorded. What remains is to generate credibility
and overcome the inertia within government and the civil service
establishment.

Why We Call It "Publicly-Created Money"

We don't call it "government-created" or "state-created money" because
some people have an aversion to the words "government" and "state".
Such aversions can lead to bogus objections on the basis of a
misunderstanding of words alone. "Oh, you can't let the government
create money", such people will say in a knee-jerk manner.

Some Objections We Have Faced

Indeed, one of the main objections which we have encountered and which
is found across the political spectrum is that we should not be giving
this power to the government because the government, it is claimed,
"cannot be trusted".

We would answer this in several ways. We answer it Technically, and we
answer it Philosophically.

A technical answer would be that we could ensure that the amount of
publicly-created money was limited to a certain amount or percentage
each year, which would be objectively measured in some way. For
example, it could be the amount necessary to pay off the interest on
the national debt, or it could be an amount equivalent to the
difference between the rise in the overall money supply from one year
to the next - as was suggested by Michael Rowbotham in his book, The
Grip of Death (1998).

The point here being that there would be an objective measure. With
this specific amount there could be strict limitations imposed upon
its
allocation. Perhaps only to be spent on Fixed Public Assets such as
schools, hospitals, and roads, or public sector projects decided by
the
elected Parliament or Congress.

Of course, these spending choices will create controversy, but such
political debate is at the heart of our democratic system.

A Modest Proposal - Democratic Control

Philosophically though, we would answer the question by saying that at
the heart of our Reform is a modest proposal - democratic control!

Money for the People and by the People! Money Reformers, highlight the
fundamental monopoly power of money creation enjoyed by the few to the
detriment of the many.

We highlight the fundamental question of who has the power to create
the money in the first place.

We say, our money supply is a public resource, which should not be
exploited for private profit. The creation of money should be a public
service, under public control for the public good.

We point to the fact that many of the economic and social ills which
beset society and the world today are due to the power to create money
being concentrated in the hands of a tiny minority, rather than
democratically distributed in the hands of the People.

So, "If", as James Gibb Stuart has written, "we can break the Monopoly
of Credit - the control over the 97%, and rising, of our money supply,
presently created by the banking system - then we have established the
right of government to create more, on behalf of the people".
(Prosperity, June 2004 - also May 2002, June 2003 and January 2004)

Money Reformers Are Questing For Real Democracy

Now some others will say, "Well, that is all very well and good but
best not talk about that until we have the democratic changes in place
which will allow us to implement these reforms safely".

However, life doesn't work that way. You don't start doing something
until every other little thing around you is perfect. That would be
neurotic.

Rather, you begin as soon as you can and you engage with the reality
that is around you, which will always be less than perfect!

So, let us seek Money Reform at the same time as we seek Democratic
Reform.

Let us not wait for one before we promote the other.

Let us be clear to locate our programme for reform - and to locate our
opposition to the present monopoly of the banking system - within a
wider struggle for democracy and for social justice, for Americans,
for
Canadians, for Australians, for British people, and for all the people
of the world.

In closing, let me wish the greatest success to the American Monetary
Institute and to the valuable and inspirational work which Stephen
Zarlenga and his colleagues are doing here.

We have such a powerful truth on our side.

Let us tell it widely.

We have such a powerful light on our side.

Let us shine it brightly upon the darkness of the debt-ridden
international financial system which enslaves so many.

And by so doing let us, and the American Monetary Institute, bring
freedom from debt slavery to America ... and to the world.

Links:

{1}
http://prosperityuk.com/2005/01/shedding-some-light-on-the-bank-of-england/


{2}
http://www.bankofengland.co.uk/publications/annualreport/2005report.pdf

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