11 minutes reading time (2222 words)

Where Does Money Come From? Disambiguation

The First Charter of Virginia, 1606, reads:

X. And they shall, or lawfully may, establish and cause to be made a coin, to pass current there between the People of those several Colonies, for the more ease of traffic and bargaining amongst them and the natives there, of such metal and in such manner and form, as the said   Councils shall there limit and appoint.

    Money is the current that animates our economic associations. Those that direct its flow are possessed of enormous power to shape the communities in which they operate. Much of the method of credit creation is self evident. We are all aware that money does not grow on trees and this testifies to the fact that money is not the outcome of any natural process. Money has been many things. It has been shells, leather discs, shaped stones and metals. In early NSW the current was rum. Today when people think of money they think of notes and coins even though most financial transactions today do not involve the exchange of these.

     In The Monopoly of Credit Douglas uses a definition by a Professor Walker to define money; ‘any medium, no matter of what it is made or why people want it, no one will refuse in exchange for his goods.1’ It will be seen that the crucial aspect of money is not its physical composition but its acceptability as payment for goods and services. It must be realised that the existence of money presupposes the existence of real wealth and the desire of people for its exchange. This is the real basis of an economy. This real basis is that on which a financial system can be raised and so at all times finance must be secondary to it and report the truth about economic realities.

    It is essential to grasp from the outset that you do not make money by making goods. The creation of money is the business of the banking system and is separate from the industrial system that provides the community with goods and services. The actual process of money creation today is never explored in popular media. A possible reason for this is that ‘the process by which banks create money is so simple the mind is repelled. With something so important, a deeper mystery seems only decent.2 According to the textbook Understanding Our Economy, borrowed from a high school library, money is created by:

      increased loans by the banks which actually generate more bank deposits.3

    The Bank of England Quarterly confirms:

Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.4

    and on how money leaves the economy: 

And the households and companies who receive the money created by new lending may take actions that affect the stock of money — they  could quickly ‘destroy’ money by using it to repay their existing debt”

    finally Douglas in an address to the King of Norway, the President and others:

All but about 0.7 of one per cent (or over 99 per cent), in Great Britain at any rate, of the money transactions – without which none of us under modern conditions could exist – are in the form of “bank credit,” which is actually manufactured by the banking system and is claimed by the banking system as its own property.5

    About 97% of our money supply originates as debt borrowed from banks by the government, commercial entities or private people. According to the Australian Bureau of Statistics housing debt has climbed to $1,447,559,000,000, more than 75% of all household debt and in 2013 was $59,200 for every person in Australia. This is a significant increase from 1990 levels when housing debt accounted for less than half of total household debt. This constitutes a significant fraction of the money that is presently cycling through the economy, and it is money that banks have created as debt, from nothing, against property. Debt against property is currently the biggest contributor to the money supply.

    Let's say a borrower is loaned $300,000 to buy a house. The figures are punched into his account by the bank’s representative and the ‘money’ is transferred to the person the borrower is buying the house from. Voila! $300,000 of new money to grease the commercial wheels. No one will refuse the addition of these figures to their account as payment for goods and services.  This $300,000 is a debt owed by the borrower who, plus interest, over a few decades, works to return something like $500,000 to the bank. Nobody’s deposit at the lending bank has been reduced to issue this loan. No one will be told they can’t have their money because someone else has borrowed it.

    Money is money lent. Money is debt and debt repayment destroys money. When our debt to the bank is repaid the benefit to the community provided by cycling money is withdrawn. More debt needs to be contracted so we can continue to access our wealth. What then is the function of the banking system?

Banks create “money” by book entries which are the equivalent of a debt against the community. The specific function of the banking system is the creation of debt, or “negative money”!6

    Money created in this way is a mechanism of control, a limiter of freely chosen activity. The debt relationship has at its heart a time factor. Imagine going to a market, selecting the apples you want and paying the price per kilo asked. The relationship here is mutually beneficial and lasts seconds. Now contrast this with a transaction based on debt. A relationship is established that often lasts decades or lifetimes and the tone of it is one of the servility of the borrower to the lender.

    If we consider the method of money creation in this light the injustice of the relationship is plain to see. What happens when you borrow money? You are asked some questions about how you put yourself in a position through which money cycles (employment). The bank will give you conveniently variable numbers on a hard drive somewhere and you promise to repay the principle plus interest on dollar per hour terms.  At a rate of $16.87 an hour that’s often a big commitment.

    And so this bookkeeping process has a great deal of influence in the real world. Much of the commercial activity undertaken in modern economies is performed for the purpose of servicing debts. This is energy expended not directly for the provision of goods and services, but to appease the requirements of the financial industry. Labour, coerced by debt into all sorts of stupid, wasteful and destructive activity, is largely responsible for our collapsing social organisation and the environmental catastrophe we find ourselves amidst.  Much of the tension in families derives essentially from this process of money via debt so it is perfectly reasonable to say that debt is a major contributing factor in the disintegration of families. We accept our condition because we accept the institution of debt as a legitimate authority. Taxation must be heavy, assets must be sold and the way cleared for foreign investment so credit lines stay open. The power of the credit rating is effective at the personal, commercial and national level. The essential point is that debt makes demands on the time of individuals and the community; time which cannot be spent doing other things they would prefer to do. The system makes the servicing of debt obligations a priority by refusing us access to our wealth (land, goods, services) unless its requirements are satisfied first. Under these conditions we cannot claim sovereignty on any level. That is, freedom from external rule.

    When we consider how simple the method of money creation is, it is difficult to understand why it is tolerated. This interview on national radio reveals how nations are subject to the same conventions as individuals:

            Kerri Phillips: Why don't more countries default? Because by defaulting it just clears the debt, doesn't it? Is that how it happens? 

Richard Holden: As you say, it does sort of clear the decks, it says we are not going to pay that back,  but you lose credibility in the global markets as a result of doing that. So if Australia were to turn around tomorrow and say we’re not honouring any of our debt, that would be a catastrophe for our ability to borrow money going forward.

     Here UNSW Professor Richard Holden is admitting that the reason we carry this debt burden is because we don’t want to fall out with a global debt clique. The question almost asks itself 'why do we have to borrow it?'

     In the same interview a Professor of Economics and Political Science at the University of California, Berkeley, makes plain the indefinite servile arrangements brought about by the method of money making:

Kerri Phillips: Just looking at those countries where debt is now greater than 100% of GDP,  what chance do those countries have of ever paying off or getting on top of those debts?

Barry Eichengreen: Well, they don’t have to pay those debts off entirely, they simply have to prevent them from going heavier relative to national income. So the easiest way to lower the ratio of national debt to national income is by growing the denominator. In other words, growing the size of the economy. If the economy is bigger, raising the revenue needed to pay the interest on the government debt becomes easier. So economic growth is the easy solution to inherited debt problems.

    Eichengreen is describing the purpose of economic activity as having an entirely financial objective. In his view we work to arrive at a figure of GDP in proper relation to our debt, so the government can take more from the people and pay the banks who, for our troubles, will allow us more debt. Can anyone who lives in the real world believe this to be a worthwhile reason for the mobilisation of the world’s productive forces? In this warped conception the financial system and the conventions of money creation have transcended the realities of the real economy and the demands of the people for its goods and services. The general public is in such a condition of hypnotised sedation to economic blah blah that this sort of nonsense is accepted as reasonable.

    The reader might realise that the business-as-usual financial arrangement, when disambiguated, is bereft of any broader purpose as a functional accounting system. As an instrument of expanding control it is extraordinarily effective. The debt game is a scam however the way is open for change. Australia’s Constitution allows that:

51. The Parliament shall, subject to this Constitution, have power to make laws for the peace, order, and good government of the Commonwealth with respect to:

(xiii)  banking, other than State Banking; also State banking extending beyond the limits of the State concerned, the incorporation of banks, and the issue of paper  money;

    Politics is the response of the peoples’ institutions to pressure from any quarter. The citizens of this country have surrendered the control of finance and the economy to minority interests that understand this concept, and who are having it all their own way. Money is the current that animates our economic associations. Those that direct its flow are possessed of enormous power to shape the communities in which they operate. Citizens of every country need to inform themselves about our economic situation, decide what they want from finance and develop strategies for asking for it. If we do not take responsibility for our own thinking on this matter we shall continue to be the bewildered herd pushed and pulled and led to the slaughter. In 1922 Douglas made the following statement and it would do us well to consider it:

Money is only a mechanism by means of which we deal with things – it has no properties except those we choose to give to it. A phrase such as “There is no money in the country with which to do such and so” means simply nothing, unless we are also saying “The goods and services required to do   this thing do not exist and cannot be produced, therefore it is useless to create the money equivalent of them.” For instance, it is simply childish to say that a country has no money for social betterment,  or for any other purpose, when it has the skill, the men and the material and plant to create that betterment.  The banks or the Treasury can create the money in five minutes, and are doing it every day, and have been doing it for centuries.9


  1. Walker in Douglas, C. H. (1979). The Monopoly of Credit, 3rd Edition. Bloomfield Publishers, England.  

  2. Galbraith, J.K. (1975) Money: Whence it Came, Where it Went. Houghton Mifflin, Wisconsin, United States

  3. Tuffley, E. J. (1997) Understanding Our Economy. Rigby Heinemann, Melbourne.

  4. Mcleay, M., Radia, A, Thomas, R. (2014) Money Creation in the Modern Economy. Quarterly Bulletin, Q1.  Available from: http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf. [6 April 2015]

  5. Douglas, C.H. (1993) Addresses by C.H. Douglas. The New Zealand Social Credit Association, Pukekohe

  6. Robertson, T. (1948) Human Ecology: The Science of Social Adjustment. The Christian Book Club, California.

  7. Rear Vision, 2015, Radio Broadcast. Drowning in Debt. Transcript Available From: http://www.abc.net.au/radionational/programs/rearvision/drowing-in-debt/6308362#transcript . [6 April 2015]

  8. Australia’s Constitution, Part V, Section 51.

  9. Douglas, C.H. (1922) The Control and Distribution of Production. The Social Credit Secretariat, England.









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