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 monopolyRobertson 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 vuWe'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 electoratePerhaps 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?