Private commercial banks exercise a near absolute monopoly on the primary issuance and allocation of money. Money is created out of nothing by banks and loaned into existence as government and private debt. Debt binds the nations in compliant submission while money buys the world at destitution prices. It doesn't have to be this way. Monetary reform -- breaking the bank debt-money monopoly -- is the way toward a solution.

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The Great Unbinding Part 1

Private commercial banks exercise a near absolute monopoly on the primary issuance and allocation of money. Virtually all money is created out of nothing by banks and loaned into existence as government and private debt. Debt binds the nations in compliant submission while money buys the world at destitution prices. It doesn't have to be this way. Monetary reform -- breaking the bank debt-money monopoly -- is the first step toward the solution.

Banks issue money as linked pairs of positive and negative numbers: money and debt. Some people end up owning all the money; other people and their governments end up owing all the debt. The low priests of the marketplace blame moral sinners for their debts. But within this credit/debt monopoly money system that creates money and debt as "linked pairs": without the debts of sinners, there would be no money for winners.

Winners use their bank-created money to buy the world from the debt-bound sinners who built up the physical industrial infrastructure of the world with their genius and their sweat. The proceeds from sale of the world to winners is not enough to pay off the sinners' debts, so they remain in eternal debt bondage to the winners.

Ok, not "eternal". Debtors don't owe their soul to the company bank. Tennessee Ernie Ford and the fictional Dr. Faust notwithstanding, souls are not mortgagable assets. Death will free debtors from their chains. But their children still "owe" their debts. And then their children. Until the end of the world. Or the end of banksterism. Whichever comes first.

Capitalism converts the human and the natural world to property and sells it for money. Bankers create and allocate the money that buys the world. The bankers' money monopoly is dividing humanity into an owning aristocracy and a propertyless serfdom. An economics priesthood arises to justify it all. The low priests' ceaseless chanting casts a pall over humanity -- a dark veil that obscures humanity's vision while their world is being sold for money.

Money is the nervous system that activates the real economy, tells it how much of what kinds of things to do, and what kinds of things to not do.

Under the bank-debt money monopoly, all economic activity must meet the test of financial efficiency. Does this socially and humanly beneficial activity generate a money profit? No? Then you may not do it. Does this Earth-wasting, humanity oppressing activity generate a money profit? Yes? Then do it in abundance.

And the low priests chant, "Market forces. Market forces."

Due to their over-riding need for financial efficiency -- cut money costs and maximize the quantity and the money prices of goods sold in order to maximize money profits -- money-seeking industrial corporations are financially compelled to scarify and waste the Earth and minimize the wages of humanity's work.

Businesses must extract more money "out" of the world in sales proceeds, than they invest "into" the world as their costs of production; in order to earn money profits. Businesses' money costs are humanity's money income. In order for businesses to profit and survive, humanity must buy business outputs for more money than humanity earns by working to produce those outputs.

How can humanity spend more money than it earns, to keep the profit-needing industrial economy alive? By taking on government debt and consumer debt, of course. Bank-issued "credit" provides the additional spendable money for businesses to earn as their profit. All credit is owed as debt. How can humanity ever repay this money debt, if all its money income is already devoted to supporting the money-needs of the industrial economy? Humanity can't repay its debts, of course.

"Sinners. Doomed. Sinners." Chant the low priests.

Even banks are ensnared by their need to get more money "out" of the world (loan principal repayments plus interest) than they create and lend "into" the world (loan principal). Loan principal is a bank's cost price. Interest is the bank's "markup", which becomes the bank's income and profit. Banks, after all, are profit-seeking businesses too. Without profits, banks go out of business. So bankers must ruthlessly demand the payment of arithmetically unpayable debts owed by sinners.

Is it "rational" to demand that people perform acts that violate the rules of arithmetic? Must the laws of physics themselves bend to serve the harsh commands, the shrill demands of banker arithmetic? Does money make the impossible possible?

"Mysteries of the faith", explain the low priests. And they stoop to ponder upon the sacred symbol $, whose magic spell keeps the low priests in their innumerate stupor.

It is not the profit motive that drives this disaster. We all need to "profit" from our work. It is the monopoly of the bank-debt money system that drives this wastage; this irrational submission to the impossible demands of banker arithmetic.

It doesn't have to be this way. The negative sum money arithmetic of profit-seeking banks and businesses does not have to doom humanity to impoverished lives of unpayable money debts. All that is required to solve this problem is to break the "monopoly" of money issuance. By adding government-issued non-debt money into the negative sum equations, we can make the equations zero sum or positive sum.

Money is just numbers, after all; numbers that work by accounting arithmetic. No law of physics or arithmetic commands that only "bankers" are allowed to create money numbers. If men called bankers are competent to issue money, then men called finance ministers or treasurers are equally competent. Bankers issue money attached by debt. Governments can issue their own debt-free money: positive numbers that are not "attached to" negative numbers.

The low priests of the marketplace shriek, "Hyperinflation! Hyperinflation!"

Have we heard enough from the low priests? Are we ready to tell them to shut the f___ up already, while we solve our arithmetic problems?

Environmental devastation notwithstanding, in a mere 30 years of industrial development China pulled 300 million of its people from poverty to middle class abundance. This was no fortuitous accident of market forces. China's government exercises sovereignty over China's money and banking system. The government instructed its banks to finance Chinese entrepreneurs who wanted to build a piece of China's economic infrastructure. The power of money issuance and allocation, not "market forces", caused China's economic development.

You simply "create money", and offer to pay money to whoever wants to build and produce and provide the things you want. The offer to pay money activates the profit motive in individual people and businesses. By making money a public good rather than the private property of banksters, you can unleash truly "free market forces" in the real productive economy.

If this awesome macroeconomic money power is operated as a public utility that serves the social and economic interests of the people of the nation, then a monetarily sovereign government can create a true economic democracy.

In the last article I questioned the wisdom of monetary reformers who want to strip private banks of their money-issuing function and monopolize money issuance in public hands. Is this just replacing the old tyrant with a new one?

It is the concentration of commanding power that attracts demagogues and tyrants and paves the road to serfdom. The central rulers make decisions and impose them on the collective, on the corporate body, on the community, on the people of the nation. We are already suffering the consequences of too much ruling power in the hands of private bankers and private corporatists. I don't think centralized money-issuing and allocating power -- Wall St run by "public" rather than "private" bankers -- is the model we're looking for.

Even China's communist government does not micromanage China's issuance and allocation of financial credit. That job is performed by the local financial professionals called bankers. The Chinese government exercises macroeconomic management to serve the interests of the Chinese people; and lets the bankers and entrepreneurs figure out how to make it happen.

I think North Dakota provides a model of a good balance of power between the macroeconomic oversight of the State-owned Bank of North Dakota (BND), and the private bankers who are served by this "mini" central bank. The BND helps small State banks make loans that are too large for their depositor base and capital adequacy. ND businesses bring "big ideas" to small banks, small banks take the ideas to the BND, and altogether they decide if the loan and the investment is worth the risk of the State's collective credit: worth providing money that enables the business to hire, pay for, "allocate" the State's real human and material resources to the business's stated purpose for the loan.

In the 1920s and 30s CH Douglas called this the "social credit": the people's real capacity to go to work and do and make what they need and want. The social credit is activated by -- hired and put to work by -- the offer to pay people money. Money is the financial credit that activates the people's real credit, their real capacity to make things happen. Since its founding in 1919, the BND has done a commendable job of macroeconomic management of North Dakota's financial credit.

Ellen Brown has written and advocated extensively on the virtues of public banking. Her 2013 book, The Public Bank Solution: From Austerity to Prosperity, makes the case for this -- what should be a no-brainer for local and State governments -- fiscally and democratically beneficial reform. OEN's own Scott Baker is prominent in America's public banking movement.

{Scott is also a longtime advocate of government debt-free money issuance in the form of "greenbacks". From Lincoln until 1996, the United States Treasury issued its own paper currency, United States Treasury Notes. As contrasted with Federal Reserve Bank Notes -- which are issued against debt -- United States Notes are debt-free cash money. Federal Reserve Notes are debt-based cash money.}

The BND uses the US$, which is owned and controlled by private bankers, so the BND is bound by the rules of banker arithmetic. The BND can issue "credit-money" (which is debt to the borrowers of the State-issued credit). But North Dakota is not a monetary sovereign with the right to issue its own debt-free fiat money.

Money is numbers that work by accounting arithmetic. Contrary to the delusion of the low priests, you cannot get more money out of an accounting equation than the amount of money you put into it. Banks create money in the amount of loan principal. But in the same process banks charge debt in the amount of principal plus interest. Money is positive numbers, debt is negative numbers. Bank lending is a negative sum accounting equation. More debt is "owed" than the amount of money that was "created" in this process. The additional money numbers -- to pay the interest and balance the equation -- have to come from outside your equation.

In order for State borrowers to repay all their loans and interest charges -- which enables the BND (and private State banks) to function over the long term as a "profitable" bank (or at least pay all its operating costs and survive as a break-even bank), the State must get more money out of the world than the State spends into the world. The money earned from oil exports out of ND into the USA provides this additional money.

So the USA must suffer a money deficit in order for ND to enjoy a money surplus; a money "profit". By getting positive $numbers from outside its own equation, ND can convert its negative sum money arithmetic to zero sum (break even) or positive sum (profit).

The USA gets oil to use; ND gets money. ND loses oil and gains money. The USA loses money and gains oil. In this system, the only way to make "our" money arithmetic work, is if somebody else suffers money losses.

This is the arithmetic problem -- "money mercantilism" -- that we are trying to solve with monetary reform. Everybody -- every 'financial unit' (person, business, bank, government, nation) -- needs to get as much or more money out of the system, than they put into the system, in order to survive as a break even or a profitable financial unit. The only way this can happen is if some party is adding more positive numbers into the system, than they are taking back out of the system.

Within the bank-debt money monopoly, putting in more than you take out is called "losses" which result in bankruptcy (ceasing operations: death of the financial unit) of the money-losing financial unit. But if a government simply "issues" the additional money numbers out of nothing, then it suffers no losses. Unlike banks' issuance of credit money that must be paid back to the bank, governments can issue fiat money that does not have to be "paid back" to anybody. The money is not "owed" to the fiat money issuer or to anybody else. It is debt-free positive money numbers.

Government money issuance was an early American innovation, when Enlightened minds shucked off the bonds of the Old World. Ben Franklin's colonial government issued this kind of fiat money: colonial scrip.

Franklin's government printed scrip money and spent it into the economy buying what the colonial government needed. Franklin's government did not "owe repayment" of the scrip to anybody; and people who sold stuff to the government did not owe the scrip to anybody. By prudent issuance and management of the colonial money supply, Franklin's colonial economy flourished with a debt-free, government-issued "fiat money" supply.

That is what fiat money looks like. We don't use that kind of money. We use bank-issued credit/debt money.

Neither Franklin's colonial government nor the private economy were "in debt" to British bankers and their 'loans' of 'gold-backed' credit money. Because a money-issuing sovereign people does not need the bankers' credit/debt money, the colony used its own money and avoided mortgaging their real economy to the bankers and avoided paying the bankers' annual "tribute" of interest.

You wonder why banksters are rich and powerful? The world pays annual interest on the world's entire outstanding stock of banker-issued "money". Money-issuing commercial banks collect perpetual economic rent on every dollar and yen and pound sterling that exists in the money supply.

The British Imperial government had previously upped the tax on tea brought in by American merchants, to support the British East India Company's state-granted monopoly in the colonial tea trade. Franklin said the tea tax was a goad, but it was the Brit's effective banning of colonial money issuance (to restore City of London banksters' monopoly on colonial money issuance) -- and the consequent monetary contraction and economic depression -- that ignited the American Revolution.

Like Franklin, modern national governments, exercising their sovereign power to "issue" their own debt-free fiat money, could perform this function of adding Positive Money into their national financial equation. As a critically necessary complement to the existing bank-debt money system, fiat money issuance could provide nations with the missing money to balance their internal money-debt equation, without robbing France to pay Britain -- as in the early days of European mercantilism that Adam Smith railed against.

Today we have German mercantilists -- German bankers who loaned Greeks money to buy German exports, so German industrialists could earn sales and profits by selling Mercedes and other German goods to Greeks who lacked money income to buy the goods -- demanding the Greeks "pay up". Pay up how, exactly? From what source of "income" are Greeks supposed to get the payment money? Move German industry to Greece, and let the Greeks make cars and sell them to Germans for money, then use the export earnings to repay their debts to the Germans? This is the only way Greeks can "earn money" to repay their debts to Germans.

In the capitalist system, you produce and sell "stuff", to get "money" from the people who buy your stuff. You don't get money by "producing stuff". You get money by "selling stuff", to people who have money to "pay you" for the stuff. Money buys stuff. Sellers get money, buyers get stuff.

What is mercantilism really? You produce real wealth by real effort, and you sell it for money that is immaterial numbers that are created out of nothing by banks, in order to earn money profits. Are we really that stupid? Have we been so mesmerized by Money that we see this as "beneficial" to us? Why don't we create our own money, and keep our real stuff too? And if we can produce Mercedes cars in abundance, we can "trade them" for Greek olives and wine and German vacations in Greece.

Among nations we can trade value for value. Not "sell" value for money. Money that buyers do not have, so sellers "lend" them the buy money. Vendor financing writ large. It looks like exporters are earning lots of sales revenue and profit, until it comes time to collect back the money you loaned to the importers. Then Germany realizes all the earnings and profits were simply its own money, being cycled to give Mercedes cars to Greeks who could never pay for them with Greek incomes. Then vendor financing -- the financialized version of "money mercantilism" -- is exposed for the Ponzi that it is.

Greeks could not buy, and Germans could not sell, as many Mercedes, under a balanced trade policy. Vendor financing keeps the Ponzi going in the short term. But in the longer term it becomes clear that the buyers' debts are uncollectable. And the tears of outrage flow. Outrage at the implacable, unforgiving arithmetic of money.

The international gold standard used to regulate trade imbalances between nations. Gold was the "common currency". International payments were made in gold, which no nation could simply "print and spend". So a nation that imported too many goods would run out of gold, and would have to produce and sell export goods to earn some gold back.

Producer nations who had produced goods, exported the goods, and received the world's gold in payment; now "owned" all the world's international payments money, all the gold. You cannot earn more gold by producing and selling more stuff to nations who have no gold to pay for your exports. International trade grinds to a halt. Producer nations have "won" the mercantilist game of money monopoly.

To restart the game, you have to redistribute the gold among the players. You can become "the bank" and "lend" players your gold, and try to win your own gold back. Or you can "give" them some of your gold, and try to win your own gold back. But you cannot "earn" more gold by selling more stuff to nations who have no more gold to pay you.

The euro is the international payments currency -- the "gold" -- that eurozone nations use to pay each other. When one player earns all the euros, that player cannot earn "additional" euros from the other players who have no more euros to spend. German industry grinds to a halt because nobody has any money to buy their export goods anymore.

But capitalists -- intoxicated by the delirious wine of Money -- do not accept the constraints of money arithmetic. So an economics priesthood arises to tell the rich men what they want to hear; to serve the demand for a New Arithmetic that satisfies the insatiable lust for "more Money".

Exporters are made to believe they can earn unlimited Money by producing and selling stuff to importers. And as long as importers are allowed to simply create their own money to buy the stuff, the exporters' dream will be realized. Exporters work and slave to make stuff that other people enjoy the use of, simply by conjuring up $numbers to pay for the stuff. Exporters get rich in $numbers, importers get rich in stuff.

The economics priesthood assumes that humanity lives in an environment of economic scarcity so that there is unlimited "demand" for additional goods production. That may be true. But what there visibly isn't, is demand by people who have unlimited income money to buy the goods they would like to have. Importers have to "earn" money, by producing and selling stuff to other players. Importers are not allowed to simply create their own money to buy stuff from exporters (unless the importer is the USA who enjoys the privilege of "issuing" modern gold, the international payments currency, the mighty US$).

Real demand is simply people wanting stuff. Effective demand is people who have money to buy the stuff they want. "The market" does not respond to real demand. The market responds to effective demand. But producers/exporters do not accept the arithmetically limited ability of consumers/importers to pay for their stuff. Producers believe in the unlimited virtue of producing stuff. They cannot understand how it could be that consumers have no money to buy all that great stuff.

So under the mesmerizing spell of an economics priesthood that blinds humanity to the simple workings of actual arithmetic (the New Arithmetic is a delusion), bankers create and lend all the money to buyers of the stuff that is produced, who pay the money to the producers. Producers earn and own all the bank-issued money. Consumers borrow, spend and owe all the bank-charged debt.

Using a relatively fixed supply money like gold as the global payments currency constrained the buildup of unpayable debts. As long as national economies remained largely self-sufficient so that they didn't critically need imports that they had no gold to pay for, the international gold standard worked well enough. But as industrial development concentrated in just a few of the world's nations, and the industrial economy advanced to global supply chains, the gold standard proved to be an impossible impediment to the financing of the industrial system. So gold was abandoned as the international payments money.

Nothing replaced "the discipline of gold", and today trade is utterly un-balanced. The trade imbalances are countered with capital movements -- loans of money. Trade deficits are financed with debt, not paid with gold.

And just like Germany vs Greece, there are powerhouses who build up vast trade surpluses, and non-powerhouses who build up vast debt owed to the powerhouses. But the Greeks of the world can never pay the debts, not unless they reverse economic roles with the powerhouses. Which ain't gonna happen.

So we get the kind of impasse we see in Europe today, between stiffed creditors and bankrupt debtors. It's a problem of money-debt arithmetic that would never have been allowed to happen under prudent macroeconomic management. The macroeconomics priesthood does not "believe in" money and debt and money-issuing banks, so they "couldn't see it coming". Now that it has happened, the only way to solve it is with an arithmetic solution.

Within a currency union combined with a fiscal union (like the USA), the government taxes dollars from rich States (the German producers) and gives the dollars to poor States (the Greek consumers), who use the dollars to buy stuff from the rich States. Fiscal transfers circulate the money to keep the system working. The eurozone is a monetary union that shares a single currency -- the euro -- but it is not a fiscal union that redistributes money from producers who sell stuff and earn money, to consumers who need stuff and need money to buy the stuff.

So Europe has an arithmetic problem. Either the creditors lose their money and Greece writes off its debt in national bankruptcy and revives the drachma as its own internal currency -- followed by all the other overly indebted euro nations -- and the euro banking and money system collapses (the free market, laissez faire solution). Or some agency with the power to tax and redistribute euros -- the European Parliament -- takes German euros and gives them to Greece -- who uses the euros to pay its debts to Germany (the fiscal union solution). Or some agency with the power to issue debt-free euros -- the ECB -- creates euros, gives them to Greece, and Greece uses the euros to pay out its presently unpayable debt (the monetary reform solution).

The first solution involves a reduction in both money and debt: the creditors' uncollectable money is extinguished along with the unpayable debt that is 'owed' to them. The second solution involves a redistribution of the money (with no change to the quantity of the money supply), which enables debtors to repay some of their debts, with money that was taken from the creditors as "taxes": creditors get repaid with their own money. The third solution involves a net addition of money to balance the debt: the creditors get paid and Greece gets out of debt.

I would pick Door #3.

But the bankster religion of "sound money" considers the addition of debt-free money a mortal sin: "unthinkable". And as long as banksters retain their absolute monopoly control of money issuance, the arithmetic problem cannot be solved, other than by Germans losing their money and Greece going bankrupt. In righteous indignation, wars of conquest and occupation are waged to seize ownership of nations who didn't "pay up".

Austrian School economists call this "creative destruction". Lending money to Greece was a "mal-investment". Mal-investors lose their money. When sh*t meets fan the Ponzi is exposed. Debts are wiped off the balance sheets along with the money the mal-investors expected to recover. When uncollectable credit is reunited with unpayable debt, the numbers cancel each other out, leaving $0 credit money and $0 debt owed. Prices, and the money supply, are reduced to "sound footings".

But there's nothing creative about financial collapse and economic Depression -- and War. Destruction is destructive. Creation is something else. Money could be created to solve the arithmetic problem. But to the Austrian "sound money" school, creation is unthinkable. Only destruction is thinkable. We must preserve the purchasing power of the existing stock of money at all costs, any cost of death, depravity and destruction. Anything is better than risking money inflation that might 'devalue' our sacred Money.

Money is numbers that work by accounting arithmetic: adding and subtracting numbers in equations. Money numbers are not produced by work. Money is simply created out of nothing. If humanity controls Money, then we can juggle the arithmetic however we choose. We can add numbers, allocate them to whoever we choose, to activate whatever economic purpose we choose. We can create money and give it to debtors to pay out their unpayable debts, for example. The creditors get all their money back. It's a debt Jubilee that does not require the creditors losing all their money.

We still have a lot of ground to cover and this article is already too long. So I'll stop here and call this article Part 1, and continue with Part 2. In this article I tried to show why government money issuance is arithmetically necessary to the financial sustainability of the capitalist "for profit" banking and industrial system. Part 2 focuses on specific proposals by which to implement the needed monetary reform.

Authors Bio:

I spent my working life as an independent small business owner/operator. My academic background is in philosophy and political economy. I began studying monetary systems and monetary history after the 1982 banking crash that was precipitated by the Mexican default and rendered 7 of America's 8 biggest banks, and 4 of Canada's Big 5, technically insolvent. They were quietly bailed out then as they are being loudly bailed out now. After the 2008 banking crash I started blogging about monetary system reform, in the tradition of Irving Fisher and CH Douglas who were prominent voices for reform during our last systemic collapse in the 1930s.

I also write about the wide divergence between perception and reality in matters of public opinion, and the central role of mass media propaganda in moulding perception and manufacturing consent, a role identified by Walter Lippman and perfected by Edward Bernays and Madison Avenue. Financial, industrial, and military-industrial corporatism is increasingly usurping the functions of government in America, Europe and elsewhere, replacing elected republican and democratic forms of government with unaccountable plutocracies mascarading as "free enterprise". Plutocracy is a neofeudal tyranny of lawless power, serving the interests of wealth rather than democratic justice. Responsible government with the power to legislate and enforce laws and control its own monetary system is our only bulwark against concentrated corporate power, which is why plutocrats are intent on destroying the credibility and power of elected governments leaving the new feudal masters free to abuse and plunder the masses of serfs at their leisure. The money issuing function is a most fundamental feature of government sovereignty, and America's government transferred that power to private bankers in 1913, placing the effective government of the nation in the hands of the money power. It may not be possible for the people to take back control of their government from the plutocrats. But it is some consolation to be able to read and write about the truth of what is currently happening to our once free countries.