End money creation by the banks


My favourite political topic since the debt-crisis became obvious in 2008 is a reform of the monetary system that separates the issuance of money from the act of lending - so that finally the banks can only lend what they have.

The top two most promising proposals I’ve read about so far that do that, achieve this either by

  • putting the right to create money back in the hands of the government. The proposal of a current initiative in german is called “Monetative” (being the 4th power branch beside Legislative, Judikative and Exekutive). While monetative.de/?page_id=27
    See who is behind it: monetative.de/?page_id=1832

  • letting the people mint their own gold as the official money (“open the mint to gold”) plus (re-)introducing “Real Bills” that circulate a maximum of 91 days / 13 weeks as “self-liquidating credit” (the means of payment needed for the trading of goods come into existence during trade as real bills and vanish after the endproduct is sold to the consumer in 91 days at the latest) as Prof. Antal Fekete is suggesting in his lecture about the “Real Bills Doctrine” of Adam Smith which I haven’t finished reading all about yet: professorfekete.com/moneycredit.asp )

What do you think?

P.S.: Of course there are a lot more interesting ideas for a monetary reform: introducing complementary currencies as Bernard Lietar proposes: lietaer.com/
or doing away with interest and inflation (- and the need to have a growing economy…) as Margrit Kennedy proposed in her book “Interest and Inflation Free Money” kennedy-bibliothek.info/data/bib … glisch.pdf

P.P.S.: If you wonder what is so bad about exponential growth watch: “The most important video that you will ever see”
youtube.com/watch?v=F-QA2rkp … D07D1F34C9

P.P.P.S: If you think exponential growth is impossible only in the real world, you can see here why something as virtual as money/debt can’t grow endlessly either:
“The most important chart of the century” - it’s about debt saturation - we reached a time, when additional debt /credit only redistributes wealth without creating any additional wealth in real terms.
economicedge.blogspot.de/2010/03 … ntury.html

While this is a lot of stuff, I’d like you to comment most on the separation of credit and money-creation (- although I notice that there are different proposals for such a “100% money”, as I understand all put an end to the “leverage” of “fractional reserve lending / banking”).

Deleveraging the economy / banking system when it is leveraged like 70 to 1 - or whatever the current ratio in reality is - sounds dangerous, but Huber’s “Vollgeldreform” (the proposal behind monetative.de) would supplant the current money (“Giralgeld” - that to more than 90% came into existence created as credit-money by private banks in the first place) at least the demand deposit part of it (“Sichteinlagen”) as if it had been issued from the government from the beginning (and thus not contracting that major part of the money supply but instead making it “unvanishable” like banknotes already are), which sounds somehow too good to be true: righting a wrong (replacing already issued money by private banks with the issued money by the state/monetative) reaching back in time, while at the same time national debt would be reduced by around 2/3 to something like 30% GDP instead of 90% GDP as it is now in Germany.
How does it work? During a transitional period of a few years national debt that comes to maturity is payed back with newly issued money (instead of borrowed) until the amount of newly issued money this way is the same size as the size of all demand deposits (which somehow are all treated like “Vollgeld” already from the beginning of the reform – maybe I’m missing something here?): since national debt is rolled over constantly, a big part comes to maturity each year (in Germany it’s like 300 billion € a year which is about 1/7th of the whole national debt (- and incidentally the size of the national budget -) reducing government debt by a large chunk (demand deposits / national government debt in Germany currently is something like 2/3 or so), so that after the transitional period (when government bonds mature they no longer are national debt but become demand deposits on the holders account) national debt would be reduced by around 2/3 to something like 30% GDP instead of 90% GDP as it is now in Germany.
So the beauty of the “Vollgeld”-Reform is: while the demand deposits become “Vollgeld” (with the same “qualities” as banknotes from then on, and are no longer part of the banks balance sheets), the amount issued does not add additional money to the economy - so money supply neither contracts nor does it expand! So a “Vollgeldreform” a la Huber somehow means deleveraging without contracting the money supply, in the form that demand deposits that are now (before the reform) liabilities on the balance sheets of banks then (after the reform) become “real money” (“Vollgeld”) in their own right (and thus are no longer liabilities on banks balance sheets (!). The banks would still offer the service of accounting after the reform, but the money on demand deposits in fact becomes central bank money (!)( - currently only banks have central bank money on their accounts with the central bank (the amount which is currently leveraged by fractional reserve lending), whereas the only central bank money the average citizen has currently are the banknotes in his/her wallet… - to which then would be added the amount of the demand deposits. So bank runs and a crash of the nationwide payment systems would no longer be a problem - the money is simply there; banks could no longer resort to extortion / would no longer be “too big to fail”. (The money in demand deposits would stop earning interest though - the same way that bank notes don’t earn interest). Of course money that is invested (= not in demand deposits) to give a return would still be at risk (and part of the banks balance sheets) - but that’s natural: no risk - no reward - you have to think as a saver who you are lending your money to for investment; that’s the simple rule of investing. I hope didn’t missrepresent the “Vollgeldreform” - this is the way I understand it would work.
I might add: after the transitional period (which would be 4 to 5 years in Germany (= 2/3 of 7 years - because right now it takes around 7 years till the whole debt is rolled over, and demand deposits / national debt right now is 2/3) the government (=the monetative) would issue only so much new (=additional) money each year as it would think the economy grows in the next year (- maybe 1-2% of GDP: which in Germany would be like 25- 50 billion € a year - but this money the government would just spend into existence without needing to borrow it (- it would be like 1/12th to 1/6th of the federal governments budget and could be used as every other part of the budget… - or maybe to pay back the remaining debt (30% of GDP) over the next 15-30 years or so).

If you are completely new to the whole topic of money creation and like to watch a movie that tells the story in a compelling way, start with “The Secret of Oz” by Bill Still:

If you can read german, read “Monetäre Modernisierung” by Joseph Huber.

Edit: After watching some more Bill Still on his YouTube channel I think I no longer consider gold money (- even with the addition of real bills) a good idea - it would finally end up in the vaults of the 1% again, leading again to some sort of plutocracy (rule by the rich), leaving the largest part of the money supply for the whole economy in the hands of the 1%. As Bill Still says it: it doesn’t matter what backs a currency (gold + consumable goods vs nothing) but who controls the quantity (in circulation + the velocity of money): the savers (gold) and producers (real bills) vs (the 4th branch of) an elected government, that balances the interests of the whole society (- able to represent even those with limited ability to “vote” with their “golden ballot” in the market as Prof. Fekete would have it.

One more edit: After reading more of Prof. Feketes stuff on the other hand, it sounds ridiculous not to consider the quality of money but only it’s quantity… - maybe he is right (and Bill Still etc. isn’t? - this is so confusing). Prof. Fekete’s theories at least seem more complete… - I need definitely to read all them, they are almost like a revelation. - Tough thing to decide who is right, when both sound so right, and yet so different.

Quote of the day:
“Oh judge! Your damn laws! The good people don’t need them, and the bad people don’t obey them.”
(Ammon Hennacy (1893 – 1970) was an American Christian anarchist, Christian pacifist, and social activist.)


An excellent, if not lengthy, post that touches upon a lot of the issues that first got me into politics, through the critique of neoliberal/neoclassical economics - which this game doesn’t seem to acknowledge as of yet.

Even with Nationalisation mods, I haven’t found anything yet for Democracy 3 that allows a modicum of control over the money supply/central banks, or much in the way of policies for the re-regulation of the financial industry and fractional-reserve banking system.
Certainly it seems that the derivative markets or bond markets are maybe outside the scope of the base-game, certainly without extra currency controls or extra economic variables and states (inflation as an obvious example), but some new policies are sorely needed around this massive part of economics.

(The Green Party, who I often play as, even directly support a campaign called Positive Money which is a group focused on these very same issues - so it is arguably “mainstream politics” once again and worth exploring in-game. In terms of research for any new policies, PositiveMoney would be a great start for any modder.)

Maybe it’s just too much for mere modders for this to be incorporated - we need Cliffski’s genius to really pull these changes off!
Just for if he finds this (as a keen buyer of the game and DLCs), I would easily pay £10, maybe more for an “Alternative Economics” DLC pack addressing the aforementioned concerns; it’s niche I know, but I think the market for said content is already primed.

TL:DR We definitely need more money/banking control, but for such Engine-specific additions I’d only trust Cliffski with such an advancement :wink:


I’ve been itching for a dlc or mod that allows players to mess around with policies and institutions like central banks and monetary policy.