Debt As Money
Posted by jonathanfryer on Tuesday, 25th September, 2007
The Gladstone Club could not have predicted that Northern Rock would turn out to be made of papier maché (ok, a little bit of poetic licence there), but this made last night’s seminar on Debt As Money at the National Liberal Club singularly timely. The basic thesis was that we have moved to a debt-based money system that is ultimately unsustainable and potentially disastrous, if confidence collapses. In 1946, when the Bank of England was nationalised, debt-free publicly-created money accounted for 46% of the money supply. Now this is down to a mere 3%. And of course, mortgage credit is the central pillar of this debt-based house of cards.
One speaker argued that the rot set in with the launch of Access and its slogan ‘take the waiting out of wanting’; personally, I think that was symptomatic rather than causative. But certainly we have got into an unhealthy situation in which easy credit has put tens of thousands of households at risk of bankruptcy and has countless others under stress. Yet is any of the main political parties really taking such issues seriously — including educating the public about the associated dangers?
Joe Otten said
Back up a second. Before we get to ‘educating the public’, don’t you think this thesis about the nature of the money supply needs a little more evidence, beyond, oooh it feels wrong and so it must be the cause of all our woes.
Obviously there needs to be prudent regulation and perhaps special taxation to weigh against the moral hazard that is due to the occasional need to bail out a bank. But this simple hostility to credit – to banking – is not going to give us that prudence.
Tristan Mills said
Perhaps we should return to a ‘gold’ standard (although what commodity should be used is unclear – we need something which has a fixed supply and is not able to be copied… gold may not be the best option)
The other problem is fractional reserve banking, banks just create money at will…
Its all problematic… perhaps we’ll hit a technological singularity soon and be living in a post scarcity society with reputation rather than money being currency.
Jo Hayes said
Well, moneylending has always been with us and then hire purchase so it didn’t start with Access, but it wasn’t respectable until renamed as consumer credit in 1974. Labour is positively in favour of consumer credit in order to promote growth, according to a senior civil servant whose speech I heard at a conference on the new Consumer Credit Act last year. Much of this debt is incurred to acquire junk, thanks to the lunatic buy, use once, throw away, resource-squandering mentality that the marketing industry uses all its skills to indoctrinate us with. It is hard to resist these pressures even though we know that the sales people and the lenders just want to make profit out of us and if necessary will evict us from our homes to get their money. Personally I find it helps to remember Friends of the Earth’s three simple words of advice on how to be environmentally responsible: “Buy Less Stuff”.
Joe Otten said
Of course if people didn’t borrow, and pay interest, they would be able to buy more stuff in the long run. So while credit and the overconsumption of junk seem to be linked, and seem to be part of the same culture, I suggest they are rivals for the pound in our pocket.