Book Review: Future Money: Breakdown or Breakthrough?

Book Review: Future Money: Breakdown or Breakthrough?

Written by Mark Braund Friday, 24 August 2012

James Robertson has been described as the ‘grandfather of green economics’; he might equally be called the father of Renegade Economics: over the last three decades nobody has been more eloquent or straightforward in their advocacy of a new economic order.

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Robertson's main focus has been the money system. Many years ago he identified the means by which money is created as the principal culprit in our failure to create a more just and sustainable society. In his new book, Future Money: Breakdown or Breakthrough? he summarises the problems with current monetary arrangements and offers an alternative which could set civilization on a much happier, healthier and long-lived course.

He is fully aware of magnitude of the required changes and the obstacles to getting them implemented. Since the publication of his book, The Sane Alternative, in 1978, as he notes here 'we haven't made very much progress'. Perhaps, like most visionaries, Robertson was ahead of his time. Most people still have no idea how the money supply is created nor of the impact on the economy and wider society. But thanks in part to the financial crisis, more people are starting to take an interest.

Wealth and well-being trickle up...

Over the years, many key figures in banking have understood perfectly well the consequences of the system they supervise. Robertson quotes Midland Bank chief Reginald McKenna and Bank of England boss Josiah Stamp, both from the 1920s. He also reminds us that the current governor of the Bank of England, Mervyn King, is fully aware of the problems inherent in the money system: "Of all the many ways of organising banking," he said in 2010, "the worst is the one we have today." So why do such influential people conspire to keep the truth from the wider public? Perhaps because they realise how incendiary widespread public understanding of the 'mind-repelling' details of money creation would be.

As Robertson says, historically "the purpose of the money system has been to transfer wealth and well-being to rich and powerful citizens and countries from poorer and weaker ones." The problem is one of an abuse of power by a wealthy élite.

Much of that illegitimate power rests in the hands of the people who manage and own commercial banks. Robertson suggests that "smooth and peaceful liberation will only be achieved when it is matched by deliberate planned giving up of power." And this is, perhaps, the key question arising from the book: can democracy be made more effective in face of the abuse of power by a small minority who, apparently without scruple, put their private interests ahead of those of the majority of their fellow citizens.

A wealth destroying monopoly

Robertson catalogues the costs to society of a system of money creation where commercial banks are responsible for issuing 97 per cent of the money supply as interest-bearing debt. As he says, "almost anyone who buys anything will indirectly be paying a fee to the banks for using money the banks created as debt." The impact on business is entirely negative, in effect imposing a tax on enterprise before any real wealth is created. But this tax doesn't go to the treasury for investment in public goods from which we all might benefit. Instead it is paid out as bonuses and dividends to senior executives and shareholders of private banks.

He also describes how, as if the basic parameters of the money system don't create enough problems, the efforts of governments to mitigate them – by borrowing money to fund a social safety net for those who fall through the economic one, or in their efforts to regulate finance, often end up making things worse.

Déjà vu

We've been here before, of course. In the first half of the 19th century, early banks created the first system of fractional reserve banking when they issued more promissory notes than they could cover from their reserves of deposited gold and silver. They regularly overstretched themselves causing frequent catastrophic runs. Realising that banks were effectively creating money that didn't exist, and the problems this caused, in 1844 the Banking Charter Act restricted the issue of bank notes to the Bank of England. The authorities in Victorian times clearly had a better understanding of the consequences of leaving the money supply in the hands of private banks; there is no sign of governments today even acknowledging the culpability of barely regulated fractional reserve banking in the current crisis.

Robertson describes in refreshingly simple language the connection between the creation of money as debt and rising land and house prices. He argues that a solution requires reforms the money and tax systems in tandem:

"When land values are taxed, continual rises in the capital value of land will be reduced with the result that the banks will no longer be so keen to stoke up the spiral by offering bigger and bigger loans for land and house purchases at higher and higher prices; and, when banks are no longer allowed to create new money, they will no longer be able to direct new money into speculative investment in rising land and house prices on its first entry into circulation"

And it's not just socially harmful speculation in land that could be curtailed by an alternative method of money creation. Speculation in stocks and shares, derivatives and other financial devices designed solely for the purpose of making money from money will also reduce. Currently, banks find it more profitable to lend to for speculative purposes than for investment in the creation of tangible wealth. When the profit motive is removed from the process of money creation, speculators will have to find proper investment opportunities if they want to borrow.

The need for a wiser electorate

Perhaps most controversial is Robertson's preference for money to be issued by the central bank and given 'to the government to spend into circulation on public purposes under standard democratic budgetary procedures.' Many people oppose the involvement of governments – which they suppose to be entirely untrustworthy – in something as important as the money supply. But none of the reforms outlined in this book will be implemented until a properly informed electorate emerges to deliver genuine democracy. Only then will governments be obliged to act in the wider public interest; in the interests of the vast majority of the population. We may be a long way from achieving that sort of democracy, but once we do, having the government manage the money supply will be infinitely preferable to leaving the job to profit-driven, privately-owned commercial banks.

As Robertson points out, economic activities have become more centralised over the last two centuries, while democracy, knowledge and understanding have been spreading. There is a disconnect between an economic system that serves only the interests of an already wealthy minority, and the mass of ordinary people beginning to realise that the wool has been pulled over their eyes. As more people come to understand the role of the money system is this gross deception, the closer we will get to a just economy. In Future Money, James Robertson adds considerably to the sum total of human understanding and brings the possibility of such a breakthrough a whole lot closer.

You can purchase James' book online here Future Money: Breakdown or Breakthrough?
Mark Braund

Mark Braund

Mark Braund Is a freelance writer with a specific interest in the prospects for transformative social change towards a more just, inclusive and sustainable society. He also is regular contributor to the Guardian and lives with his family in London

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  • Comment Link Robert Ulanowicz Sunday, 02 September 2012 18:50 posted by Robert Ulanowicz

    I haven't yet read Robertson, but the book sounds amazingly like Bernard Lietaer's "The Future of Money"!

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  • Comment Link Cade Halada Monday, 03 September 2012 15:26 posted by Cade Halada

    So he basicly favors the Georgist approach of taxation on land values. So no one ever owns their land even though everyone needs land to live?

    The idea of letting the government spend money into circulation is troublesome. This would simply shift more power to the politicians.

    Fractional reserve lending is not the root of the problem. When currency is borrowed fractionally it is eventually backed by the wealth because it's being used to create wealth. The real problem is the fee that banks get for that service - compound interest.

    That is the only silver lining about allowing government to spend money into circulation. There would be no interest on the issued money, but it just increases power at the top.

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  • Comment Link Millie Tuesday, 09 October 2012 21:15 posted by Millie

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  • Comment Link David Ironside Sunday, 28 October 2012 23:20 posted by David Ironside

    I support the banking reforms proposed by Robertson.

    Mr Braund notes that, 'Many people oppose the involvement of governments – which they suppose to be entirely untrustworthy – in something as important as the money supply.' Perhaps so. Perhaps our naive trust is better left with unelected corporate titans who manipulate interest rates for their shareholder's benefit (see Libor). And speculate on currency exchange rates, exacerbating global financial instability (see paper by Reszat 1999). And engage in predatory lending. And when it all goes bust, expect the government to bail them out.

    Or maybe not.

    As for Robertson's notions about Georgist land taxes - I'm skeptical. In Australia, many farmers are asset rich but cash poor due to the unreliable climate. Georgist taxes would surely see them wiped out while the big earning apartment dwellers of the cities benefit.

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  • Comment Link Joseph Glynn Monday, 18 February 2013 00:56 posted by Joseph Glynn

    Robertson is right. He knows his subject matter. The comments are viewpoints and incorrect in my view. I fear they reflect either a sort of Stockholm syndrome, or lack of knowledge.
    Democrat control of banking and land value taxation are essential for sustainable development. Robertson explains why.
    Michael Hudson ( published a powerful restatement of the argument for land taxation and for ending the private monopoly on credit creation and it's sectoral allocation just after Christmas. Its a stark warning of the advance of a new feudalism. Like Robertson he gets to the heart of the matter.
    Only through such essential reforms can humanity secure its future.

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