Economic Democracy
True political democracy can only be built on the foundation of true economic democracy. It is the duty of democratic government to secure the results the people want from the management of their public affairs as far as such results are physically possible and morally right. Whatever is physically possible is financially possible through appropriate democratic and just transformations of society’s economic institutions.
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It is not widely understood that, at present, around 97% of the new money supply is fiat credit money created out of nothing by the private banking system which then adds a demand for interest of which administration cost is normally but a component. Government creates the remaining 3% as coins and banknotes.
Thus the inherent power of government to issue money has, in practice, become a private banking monopoly. Which might not matter too much if the monopoly were being used to serve the purposes of the whole of society and large amounts of interest were not involved.
But the banking monopoly (contrary to the daily propaganda issued by banks and governments the world over) is not used to serve the purposes of the whole of society. It does not allocate resources in the most efficient way; it does not allocate resources in the fairest way; it is anti-democratic, and it always tends towards inflation.
The addition of interest, moreover, is generally a worldwide device for shifting wealth from the poor to the rich. The way the interest mechanism works is complex but interest is a considerable part of every price that we pay! So, even though people may get part of their income from interest, they still lose overall. Generally, 80% of the population loses as a result of interest; 10%, on balance, neither loses nor gains – and the last 10% most definitely gain!
Furthermore, country after country is being oppressed by the banking system which, demanding billions of dollars of interest forever, thinks nothing of crushing a society and its people. The complete imbalance of power between the banking system on the one hand and countries, corporations and individuals on the other happens because the world has been bamboozled into thinking that newly-created money has to be borrowed from the banking system with interest added. That interest, particularly in the case of poor countries, soon compounds to become astronomically large. The result is that the total debt becomes unrepayable.
The situation is then considerably worsened by corrupt elites who finagle the borrowed money into Swiss bank accounts, leaving the repayment of principal and interest the responsibility of their impoverished, politically crushed populations. And this essentially happens because countries do not yet understand that they do not need to borrow money for their capital investment with interest added. Instead, governments can create their own money – with no interest added!
The really extraordinary thing about the situation is that it is an obscene fiction – the Western banks doing the lending never have the money in the first place because the lent money is created out of nothing by pressing computer buttons! The obscenity becomes particularly perverse because the debts are imposed on impoverished populations by banks who practise predatory lending. Such lending happens when a bank, knowing that the likelihood of full repayment within a short period is most unlikely, still goes ahead with the lending. It does this because, in that way, it can batten on to the borrowing country for, not years, not decades, but generations!
This results in the situation of the Pakistan haris – debt-slaves whose original debt (maybe a hundred or more years before, to pay for a funeral) would have been a few dollars but because of poverty, unrepayable at the time. Then, with compounding interest over the years, the debt becomes larger and larger and the obligation to repay an ever-increasing amount is passed down from father to children for generation after generation.
Another version of predatory lending occurs today when the banking system lends large amounts of credit (repayable in dollars) to a country’s corporations and institutions. Then the hyping begins – Hooray! What a splendidly burgeoning tiger economy! (And it is burgeoning because of all the newly lent credit). A flood of hot, reckless money soon follows.
A crisis then happens and there is a run on the local currency (and its devaluation) as repayment in dollars becomes impossible. The crisis is probably deliberately engineered so that the international vultures can move into the country and buy up the assets of corporations at distress (and devalued) prices.
Yes, deliberately – that was the case with Malaysia in 1998. There was no reason for the run on the Malaysian ringgit: it was the result of corrupt conspiracy. Fortunately, the Malaysian government, showing extraordinary courage, resilience and new thinking, imposed currency controls and resisted the demands of the IMF. A mere two years later, the IMF had to admit (it was a grudging admission) that Malaysia had got things right………..
All of which tells us the truth – a mother of all stings is going on. A truly successful sting happens when those who are stung do not realise that they are being stung! That is the situation today because countries do not yet realise that they do not have to borrow at interest for their capital spending but can create the needed interest-free money for themselves.
Until they realise how money is actually created and that they can create it for themselves, no country or society can ever be free and will always, economically, politically and socially, be in hock to others.
However, once it is understood that, today, all dominant monetary systems are fiat systems, (yes, creating money out of nothing), then all the lies and propaganda that at present govern the world are soon exposed for what they are – lies.
Thus, contrary to the lying propaganda put out by the banks and governments, the addition of interest is not generally necessary (although administration charges and some other possible cost may be). This is a subject of the greatest importance to Muslims whose religion forbids the imposition of interest.
To take another crucial example, the propaganda always says that financial savings are necessary before capital investment can be made. That’s another lie which results in only the rich being able to invest.
The truth is that, since money is nowadays created out of nothing, financial savings are not necessary before investment can be made. There may be a need for some form of security against the possible loss of the investment, but that’s another matter. And there may be a need to pay a higher price for different physical materials, or use different physical materials, or even wait because of a labour shortage but, again, those are other matters.
Furthermore, it is already possible, lawfully, for communities to create new currencies which have no interest attached. See Complementary, Community and Ecological Currencies.
Because countries right the way round the world have allowed themselves to be bamboozled into believing that money always has to be borrowed from someone else, a disastrous situation has arisen. Many countries now have astronomical levels of debt – a debt that that is often illegitimately created because, in the first place, there never was a reasonable prospect of the debt being able to be repaid. Thus interest on the debt compounds for evermore. That’s the cynical way the banking system lives off the poor.
So, if the poor of the world are to have lives imbued with the five Justices, they must be allowed a fresh start by having existing debt cancelled. Anything less, would be a betrayal of hope and decency.
Any nation, therefore, should realise the consequences of its failure to understand how it is ripped off, controlled and impoverished. Consider this list:–
| 1. Goods and services are needlessly expensive The cost of borrowing is in the price of all goods and services. This includes the borrowing costs of the suppliers (and the borrowing costs of the supplier’s suppliers) as well as the borrowing costs of government (which make for unnecessarily high levels of taxes all of which, in one way or another, are included in the price of a good or service). 2. Consumers are impoverished Separately from having to pay for the cost of borrowing in goods and services, consumers are impoverished by the cost of their own borrowing be it for a mortgage or a credit card. People have to borrow when they have insufficient income. 3. Inadequate demand As a result of the above, the economy has inadequate demand with consequences for jobs and prosperity. 4. Effects on business The inadequate demand holds down wages, causes job losses, encourages cheap imports and leads to jobs going abroad. 5. Inflation Interest, and the effects of interest, is the biggest cause of inflation. This is usually ignored because people have been conned into thinking that nothing can be done about interest. When interest rates go up, there may be a temporary lessening of inflation as demand is reduced but, in the long run, increased interest rates mean increased inflation. 6. Effects on international trade Exports bring in foreign currency which, for the exporting nation, does not have debt, and interest, attached to it. But when a nation imports, the money used to pay for the imports usually does have interest attached to it. Therefore exports are not mere opposites of imports but, somehow, in order to pay the added interest, every nation must export more than it imports – which is impossible. 7. Third World debt The funds of the International Monetary Fund (IMF) are created out of nothing whereon interest is added. A nation in financial difficulties, therefore, soon ends up repaying (if it can) much, much more than it originally borrowed! Today, the poorest nations borrow and then have to export everything in an endeavour to repay the interest, rather than paying for their own needs. Inevitably, they then have to cut back on their own health and education programmes with disastrous long term effect. 8. National debt In the UK, the National Debt is around £400 billion (and £26 billion in 1960) with an annual repayment of interest of around £20-25 billion. This is such an appalling – and yet, quite unnecessary – sum that little else can be said except that the total National Debt, and the interest payable on it, can be expected to rise steeply, if not exponentially. 9. Insufficiently productive consumers The debt-based money system inevitably ends up concentrating the ownership of productive wealth. A widespread ownership is essential for prosperity and a deepened democracy. 10. No secure income The system does not, and cannot, have a secure income for all individuals. 11. Money is used for speculative purposes, not production Most money today is not created for the purposes of production and new wealth. Rather it is used for speculative purposes building unsustainable bubbles which, when they burst, cause disaster for millions of people. |
The negative effects of the debt-based money system will continue while, around the world, people are ignorant of how they are deceived. Yet people of good faith who understand the deception and who understand how money is created out of nothing and interest added have a responsibility to others to press for change. They should, for example, ask why the example of the New Zealand in 1935 is not being followed today. At an interest rate of only 1%, hydroelectric projects and public housing were financed. Why not today?
Furthermore, apparently small things – like the existence of tax havens, for example – might not seem too important. Yet, such havens are often the means by which corporations (using fictitious expensing) deny tax revenue to their host governments and manipulate prices to the disadvantage of suppliers and others. Another example which people often think unimportant is the 100% borrowing allowed for the acquisitions of real property and companies, resulting in inflated asset prices and the dangers of a speculative collapse in which everybody suffers.
Acknowledging the undeniable truth that money today is created out of nothing reminds us of the child’s story of The Emperor Who Had No Clothes. Yet, as is well understood, the child’s story is also profoundly true of adult life – untrue fact can be supported by everyone, or certainly by all the powerful, until some innocent waif points to the obvious and undeniable, thereby, to the relief of most, collapsing a lying structure.
From the acknowledgement of the truth, moreover, the outlines of new policy soon become apparent. Some of that new policy is set out below. To understand it, please remember:–
• Money is society’s money and its creation, and the full benefits of that creation, should not be a privilege granted only to the few.
• As a universal and fundamental right, every citizen must be allowed to play a full part in economic production which, in practical terms, means being allowed to participate in the ownership of future productive assets. The issuance of credit for capital investment must be democratised so as to spread widely the ownership of self-financing productive assets.• There is a sharp distinction between:– i) credit extended for producing wealth, and ii) credit extended for consuming wealth (today people are bombarded with invitations to borrow, at interest, of course). The former is designed to increase the productive power of the borrower (a good thing) while the latter creates artificial purchasing power that has historically weakened and enslaved the borrower economically (in the long run, a very bad thing). • The wealth gap between rich and the non-rich must be narrowed. |
In referring to interest-free money, it should be understood that associated with the issuance would be a small cost for administration expenses and, in certain circumstances (private sector wide ownership), a possible cost for loan insurance. That said, in the Justice economy, there will be two broad types of interest rate:–
| a) interest-free (as qualified by the paragraph above) for Justice purposes b) interest-bearing for those parts of the economy not covered by the Justice proposals. |
Debt-free money, of course, is money that has no interest attached to it and is not repayable.
1. End the monopoly of the private banking system
In practical terms, this means increasing the proportion of the new money supply that is issued directly by the state (with relative decrease issued by the banking system) and then using the increase for specific purposes including those of the private sector. The newly created money can be either repayable or non-repayable.
At this point it should be noted that a common trick of the lying propagandists is to allege that any proposal for monetary reform (as in the GJM) means the endless printing of non-repayable money with a resulting huge inflation. “Like Germany in 1923!” they scream.
However, the first main GJM proposals are for the issuance of interest-free (plus administration cost) repayable and cancellable money for use in capital investment and so there will be no inflation. Rather, there will be counter-inflation as newly productive capital assets come into existence while the money that helped create them is repaid and can be cancelled. The essential point is that using state-issued repayable interest-free money for capital investment results in a cost one half of that at present.
Such investment can either be:
• public capital investment, or
• private capital investment
• public capital investment, or
• private capital investment
N.B. Over time, in the Global Justice economy, interest-free money will come to replace interest-bearing money and not be in addition to it. Since it is replacing, it cannot be inflationary.
| see "Seven Steps to Justice" by Rodney Shakespeare & Peter Challen | Published by NEW EUROPEAN PUBLICATIONS LIMITED 2002 188 pages 215mm x 140mm Paperback ISBN 1 – 8724 – 1027 – 8 Price £10-95 |  | This book is available at www.amazon.co.uk or through UK bookshops or by mail order – £11 including postage to: Peter Challen, 21, Bousfield Road, London, SE14 5TP Tel: 020 7207 0509 |
The Seven Steps form the theoretical and moral basis of the GJM. The Seven Steps are:—
| • There must be public acknowledgement that the present banking is an unjust monopoly that creates 97% of the money supply as interest-bearing debt.
• State-issued interest-free loans (plus a small cost for administration expenses) should be used for public capital investment thereby halving the present cost.
• State-issued interest-free loans (plus a small cost for administration expenses and a possible cost for loan insurance) should, on market principles, be used for private capital investment if such investment, using the mechanisms of binary economics, creates ownership stakes and property incomes for all income groups, including the poor.
• State-issued interest-free loans (plus a small cost for administration expenses and a possible cost for loan insurance) should be used for loans to start-up and small business.
• Since the Steps above are counter-inflationary and ultimately diminish the money supply, debt-free non-repayable money should be issued for individual secure incomes to the extent necessary to keep a stable level of prices.
• That, in addition to the Steps above, the position, role and economic position of women in the world be specifically addressed.
• That the Steps above be implemented as the only possible long term solution to get peace in areas such as the Middle East, Kashmir and Iraq.
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N.B. Over time, in the Global Justice economy, interest-free money will come to replace interest-bearing money and not be in addition to it. Since it is replacing, it cannot be inflationary.
2. Issue repayable, interest-free money for public capital investment
Every day, a colossal and absolutely amazing rip-off takes place and only the brave few (such as the GJM) have the courage to protest about it.
It happens because all governments require money for their own capital investments – things such as hospitals, schools, roads, bridges etc. Yet, at present, instead of governments creating their own money for these purposes (and then getting it repaid and cancelled) they borrow from the banking system which just creates the money out of nothing and then adds, over the years and decades, seemingly endless amounts of interest!
This causes a horrific level of National Debt. In order to repay the Debt (or, rather, to try to stop it increasing exponentially), vast amounts of interest have to be annually paid – and such amounts are a large proportion of the income tax we have to pay. What a rip-off!
Yet that rip-off is not necessary (although the defenders of the present system like to claim that it is). Public capital spending can, and should, be financed by state-issued, interest-free money (which, in practice, only has a tiny administrative cost). It is only lack of political will (because the political system is controlled by vested interests) which prevents the use of such money
Please note that the proposal does not mean that the government necessarily has to construct the public capital investment, nor manage it – in both cases, that can be done by the private sector, if wished. It only means that the capital cost is much, much cheaper.
Moreover, the GJM does not propose an increase in the total amount of public capital spending. However, since public projects will become hugely cheaper, the same amount of money will buy much, much more! Get it?
The proposal also has regional implications. Thus the Alberta (Canada) Social Credit Party sees the virtues of local Treasury Branches providing a strong Alberta-based alternative to out-of-province financial institutions. In this way, the benefits of the financing go to local people rather than outsiders. People such as Dr. Shann Turnbull vigorously promote this sensible idea.
In sum, the purpose of the first GJM proposal is simple – state-issued repayable interest-free money (plus a small cost for administration expenses) reduces the cost of public capital investment to one half, even one quarter of what it would otherwise have been. Malaysia is believed to be experimenting with such money.
See the Canadian website of the Committee on Monetary and Economic Reform: COMER has a particularly helpful video - The Creation of Money and its Consequences:
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3. Issue repayable, interest-free money for private capital investment if new owners are thereby created.
Just as state-issued, repayable interest-free money can be used for public capital investment, so it can also be used for private capital investment. Whereon an objection arises – if interest-free money is allowed for private capital investment, the existing rich would become astronomically rich. Which is true.
However, the GJM proposal has a big difference – the use of interest-free money (plus a small cost for administration expenses and a possible cost for loan insurance) for private productive capital investment would only be allowed if it results in new owners of that capital. Generally, this would take place only in large, well-established corporations (e.g. in the USA the 3000 largest corporations) not new or small businesses.
And new owners – millions and millions of them – are what the GJM demands. Every person – in work, out of work, female, male, old, a student, a baby – should have a first secure income coming from the ownership of an independently owned capital estate (paying out its full earnings, after retention for research, development and depreciation). The first secure income will start small (for a baby) and then, gradually, over time, on market principles, as new productive investments are added, get bigger ……… and bigger…….AND BIGGER!
The mechanisms for achieving this are those of Binary Economics. It uses a trust mechanism similar to those of existing ESOPs (Employee Stock Ownership Plans) but without their disadvantages, and with safeguards against abuse. The existing banking system would administer the money. Over time, on market principles, everybody comes to a proper ownership of productive capital and its income.
Market principles include a requirement that a project should be able to pay for itself and, in practice, there will often be a need for a substitute for collateral. Binary Economics provides that substitute with Capital Credit Insurance. See Binary Economics — the new paradigm, Robert Ashford & Rodney Shakespeare, obtainable from Amazon.com
Again, the proposal has regional implications. Local Treasury Branches would ensure that the benefits of the financing go to local people rather than outsiders.
See also the website of the Center for Economic and Social Justice Washington, D.C.
4. Issue repayable interest-free money for farms, small and start-up business
Farms, together with small and start-up businesses, are the seed corn of an economy. They, too, should benefit from interest-free loans (plus a small cost for administration expenses and a possible cost for loan insurance) rather than pay huge interest charges as at present.
For any large interest-free loan, collateral (i.e., some form of security to be put up against the possible loss of the loan) would still be necessary. See Binary Economics. But the key point is that interest-free loans could be used for small businesses in exactly the same circumstances as today (e.g. the money being administered by the present banking system) except that the small business would not be suffocated by interest payments. As with public and private capital, the overall effect would be counter-inflationary. Farms, small and start-up businesses would not be subject to a wide-ownership requirement.
5. Issue non-repayable, debt-free money for a second secure income
Since interest-free repayable money for public, private (wide ownership) and small business capital investment is counter-inflationary there will be increased wealth but lowered prices. In order, therefore, to maintain a stable level of prices, the issuance of debt-free money will become necessary. Such money has no interest attached and is not repayable.
Looking at things from another viewpoint, that of Social Credit, the economic system always has an insufficiency of demand. Social Credit proposes a National Dividend to correct that insufficiency.
However, whichever way the situation is viewed, a second secure income becomes possible (in addition to any income a person gets from labour).
The use of debt-free money is discussed in Creating New Money, James Robertson & Joseph Huber.
See also the websites of the following organisations:
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6. Use interest-free money for green capital investment
Windmills and solar energy-generating systems are examples of investment projects that can, and should, be done with interest-free money. However, while, as at present, all such investment has to be made with interest-bearing money, the projects have a borderline, or no, viability.
With interest-free money, however, they become economically feasible. Getting such technologies into operation is now environmentally urgent. Indeed, unless it happens within about five years, it may be too late.
There is hope, however, because some mind-bending alternative energy and other technologies are now on the verge of practical possibility. Examples are the MEG Motionless Electromagnetic Generator and various processes for using hydrogen obtained from water. It is utter madness not to give these new technologies a chance to save the planet. The use of interest-free money would be that chance.
Unfortunately, at present, vested interests and fossilised mindsets have induced a deep paralysis.
7. Encourage complementary, community and ecological currencies
Perhaps the main difficulty preventing the spread of complementary, community and ecological currencies is the cost of administering them. At present, this has to be done by volunteers. However, if Global Justice secure incomes are introduced, that problem will be largely, if not completely, solved. See Complementary, Community and Ecological Currencies.
8. Keep wealth local
If credit is issued locally, the benefit of that issuance and its repayment stay locally – put simply, wealth stays locally and is not ripped off elsewhere.
9. Cancel the debt of poor countries
If the poor of the world are to have lives imbued with the five Justices, they must be allowed a fresh start by having existing debt cancelled. Anything less is a betrayal of hope and decency.
10. Review of tax havens
Too often, tax havens are centres for allowing corporations to rip off others through fictitious expensing and other forms of white collar crime. A review of the situation is urgently required.
Remember – the world has the technology and productive resources to eliminate misery, poverty and injustice and save the planet (particularly if the MEG Motionless Electromagnetic Generator and other new alternative energy sources become commercially viable).
So let’s demand the Five Justices!
Join the Global Justice Movement!
See those who have joined the GJM! Compare Global Justice with present Capitalism and Socialism!
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Global Justice – the true, fair, democratic and efficient solution to poverty. Global Justice means Inclusive Justice!
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