Follow the Money

Follow the Moneybanker

What is meant by “money”? Many things, and many associations, including emotion, conscious and unconscious. The word connects to so much from value to avarice. These things matter. Money is not an objective concept, it is an abstract idea, put into practice by decisions made. The type of decision made, that allows its creation as a “thing” to use, has consequences in practice.

The history of money shows many sorts of “things” [beads, shells, rocks, gold and silver ingots etc., poker chips, baby-sitting tokens, store loyalty cards and food stamps] that are used as the currency, trusted in particular places and contexts. Though we seldom think about it, we agree that one function of government is to validate the currency used by its citizens, make it trustable. More importantly, we also seldom think about how the currency, or the quantity of it available for use has been created. We usually think about how we will use manage or distribute what we have.

Across the world, money created by central banks provides us with notes and coins in defined currencies. However this is actually a very small amount of the money created, and we use far more that is simply numbers moved between accounts of various kinds, now moved electronically rather than by rewriting figures in a paper ledger. Over 97% of the money now used is represented by numbers in computers, numbers very particularly associated with someone, or of some organization. Wherever the numbers are, in “my account” or “the employer’s account”, or “the pension pot”, etc. they are called “money” .

Who makes – or creates – this money? When the word “make” money is used, it often means earn, that is payment for work or service from the quantity of money already in existence. When we ask “where does money come from?” so that it can then be earned or moved from one account to another, we mean “create”. This number money is created from nothing, money appears somewhere in an account that was not anywhere before.

Although it seems crazy, this is exactly what happens, and has often happened throughout history, as money is an idea turned into a thing that can be used. Rather than considering the “use of money” consider how money is created, and who creates it, and see the consequences of the method we now use throughout the world.

Begin with Money Creation, then Follow The Money.

Where Does Money Come From?

There are different methods of money creation, that can roughly be divided into an either/or of human psychology and world view. One, NOT the current world method, is rather like “what goes around comes around” or “pay it forward”. In other words, people will cooperate with each other in their communities and societies, so give them the money they need in line with the resources that are available, or can be made available. This could be through what is called a “sovereign money” method, money created by a government on its people’s behalf, or could be through a “Commons Principle” where the government is effectively the principles agreed in the commons. Both these, as do all other methods, need laws and sanctions to deal with transgressions. There are some localities where the people in their own community use such money creation.

However, the other method of money creation, now used throughout the world, is so basic to our economies that it is almost invisible. We do not see it, we only see the consequences. Watch a video: Where Does Money Come From?, Ole Bjerg, TEDxCopenhagen. As the video shows, world-wide, an amount about 97% of money in all its different currencies, is created by commercial banks when they make loans, or give credit to individuals, groups, companies, organizations and even governments. Commercial banks are private corporations who provide this service to society, and who also make profit for their shareholders. They are a kind of corporation, but the only kind privileged to CREATE money.

This money creation method, “Money from Debt”, or “Credit and Loan” follows an aspect of human psychology that is based on a fear for survival, that sees all resources as scarce, and requires competition. This is why it seems so natural, it is natural, but only partly so, as it ignores and downgrades the co-operative and caring parts of nature. The idea that a government could create money as part of its duty to those governed has become harder and harder to grasp. Instead, governments also borrow to fund needed policies, and find themselves “in deficit”.

There are three consequences arising from the practice of creating money through debt.

Scarcity, and Competition

Lack of Purchasing Power

Wage Dependency


Consider the starting point of a financial system near zero, as notes and coins issued from government gift is very small. By ‘think of a number’ and a tap on the keys, money is created and issued by credit to a borrower [who has taken a loan so the money is also debt].  This money just created is then in circulation, the borrower can use it to purchase, and must also do work to earn money from other people or organization so that the debt will be paid off, at which point the created money goes out of circulation. But we are not talking about one borrower. Where did the “other people or organizations” get their money that they paid this borrower as wages or salary? They have “borrowed” or earned from other “borrowers” somewhere along the chains of work and pay and supply, because that is how money is brought into the society. Whatever is happening at any one point in the circulation, is part of an endless ebb and flow in an ocean of currency that has been created by credit issuance, or debt. Even the individual who says “I don’t borrow”, the person who earns as they go, is being paid by a borrower or borrowers further in the system.

What is also happening, is that money that has been borrowed somewhere is being paid back with interest, that is a sum above that originally borrowed goes to the bank as real money, profit made on something originally created from nothing. Over time, not just considering the state of circulation at one time, because this interest has also had to be earned by work done, it means that part of the value of all the work done by all individuals in all organizations, is extracted, and not only pays the bank for its service, but also becomes profit to the bank.

In general, everyone, and every company, would rather feel solvent, have enough money without being in debt, would want to be “free”. Businesses, organizations and corporations would aim for sales of their products or provision of their services without debt, so they could invest without further borrowing. But, as the quantity already in circulation will suffer extraction as well as repayment the only way to keep money in the economy is to borrow more to be repaid in future, to maintain and increase the money supply, that would become more and more scarce without borrowing by some ‘body’ continuing to happen.

Individuals, companies and governments are driven into competition with each other, as each wants to be solvent, not in debt, but the system says someone has to borrow more. For example, countries try to export more than they import, and in the government policy known as “austerity” a government aims to reduce “budget deficit”, which moves the scarcity and debt to a different part of the economy system, and individuals or businesses find themselves borrowing more, or working harder, in order to survive. Competition between profit for companies and wages for workers follows.

A further consequence is that the goal of work and of production becomes the pursuit of money. People work harder and longer hours to pay off debts, or avoid getting into debt, as they need more money for an increased cost of goods, applied because the companies who produce these goods are also trying to reduce their dependence on debt. Businesses are forced to see profit as more important than purpose, will offset debts against assets, so that in each yearly return the business stays solvent, and competition with other businesses, advertising, shifts in price and quality, become another necessary drain on reserves.

Purchasing Power Reduction

The purpose of having money in the economy is to enable the exchange of goods and services. When the money in the economy is created by means of issuing credit to all in the community as the “borrowers” some of the money is required to service the repaying of debts, as well as that needed to purchase resources or goods and services.

“Industry” means work of whatever kind, taking place in home or small farm or coffee shop or health service or multinational corporation, say “in a business”. Industry has two functions. One is producing the goods and services from the resources, doing the work, and the other is paying for that work, whether it is by self-employment or contract with workers. The payment of salaries, wages, profits, however distributed, is what gives the money to the consumers who buy the goods and use the services produced.

Consider a business that has borrowed through loan or through shares, which are effectively equivalent to borrowing in that dividends given are like payback. This borrowing is needed to buy the raw material and the work that will produce the goods. The business has to set a price on the goods greater than the raw material and payment to workers. If it does not, it cannot repay the initial borrowing. The overall effect in the network of businesses and workers and consumers is that prices are set higher than the quantity of money distributed to the workers who are also the consumer people who need enough money to pay for the goods. This can be stated as “industrial debt elevates the prices of goods and services above distributed incomes”.

At the same time, consumers have mortgages, loans or overdraft debts and in making repayments on these their income is reduced further below the levels available for purchasing. The result of creating money through credit or share issuance [effectively debt] is that prices rise and disposable income is reduced. This is what is meant by ‘lack of purchasing power’ in an economy. It is a gap that steadily increases in the whole system, however many individual persons or families or companies manage to reduce their personal gap. There will be winners who manage to get disposable income greater than the cost of goods they need, but overall, there will eventually be more losers than winners. The purchasing power gap affects the entire economy, and steadily becomes worse so that individuals, businesses and government departments have to adjust their own positions more in order to survive. The consequences of these adjustments, then become problems in their own right, and different parts of society compete for solutions. Society’s problems, inequality, the poverty trap, advertisements that encourage spending, rising prices of shoddier goods, housing, communications, transport, endless growth and a climate emergency, etc. are visible, painful, while their cause is unseen. The inability to redress these derivative problems, symptoms arising from the method of money creation, brings helplessness and even denial that some of the problems exist.

Wage Dependence

The inability to effectively act to redress the symptoms is associated with a further consequence of the creation of money as debt. A great flaw in many current economic and monetary discussions, whether in theoretical, political or social analysis, is that of conflating “value” with work for money. Gainful employment is treated as the important part of life.

Being a child, a carer, a person with disability or illness, or old, is less valuable, when the answer to What will you be when you grow up?” is tinker, tailor, doctor, lawyer, rather than kind, patient, generous, have a good sense of humour etc. These qualities, like spending time in creative playfulness with others, friendships, human company, appreciating the natural world we live in, although welcomed when they are a side effect of work, are nevertheless pushed to a place of lesser value, as if being human with both flaws and assets, being a modest part of a living world, was only to be an add-on to being a producer and consumer of goods, using and spending money.

In this conflation, as though value could not exist without work, unemployment is the problem, and getting people in to work is the solution. It is a paradox that much that is valued in living is neither work nor earning power at all. Another paradox is that in an era where technological progress has developed such astonishing and increasingly productive capabilities that the need for long hours labouring is lessened, instead of increasing leisure time for all, what has happened is that people are divided into those who have work, and those who have not. Both have problems, stresses, though these are of very different kinds. The response of developed economies has been to ignore “leisure” or re-direct it back within economy as a kind of service bought and consumed in gyms, holidays and tourism. The unemployed must seek work, any work for wage, said to be necessary to restore their dignity and involvement in society, without regard to either the precarity, indignity, low wage or poor ethics in some of the only work available.

Developed economies in particular are so obviously wealthy that the possibility of job rotation, job sharing, sharing unpaid “work” such a caring or volunteering, is a totally obvious route to a rewarding and engaged living but instead many of those in work are ever increasingly stressed by the need to keep ever more precarious jobs and pay back continuing debts, stressed by being unable to find time for family and friends, developing guilt and anxieties, and ill-health. Those not in work are assumed to be as inadequate as their incomes, and government policy assumes they will be supported sufficiently by taxation of those who do work. This process, whether operated with generosity or grudge, also makes an assumption that income as a whole in the economy is sufficient to buy the goods needed, an assumption that is simply wrong. The distributed income of all, whether they are in or out of work, lacks sufficient purchasing power.

Thus the progress of technology, instead of being harnessed to improve the quality of living, is forced into subservience to economic growth so that the debt based money supply can continue. The pursuit of work for money, only money, has become an end in itself within the ever growing proportion of the economy called the “financial industry” while a need for money in order to keep going overrides purpose in other organizations. More and more work that is available suffers from meaninglessness. Leisure is obtained through conspicuous consumption by those who have money. Also, in a way, unemployment is also a form of leisure catastrophically forced on some as they will lack basic means or dignity. They will be called lazy, while those in work for money, meaningful or not, are considered contributors to economic wellbeing, but together the combination is really a social disaster.

In summary, the creation of money by issuing credit [debt] to be repaid forces a relentless demand for economic growth via fear of scarcity, subsequent competition for resources and further necessary debt, causing a societal lack of purchasing power. More simply, there will always be a gap between income and need, as too much is extracted from the energy put in by the payback required. The many problems we try to mitigate, inequalities, warfare, displaced people, trade wars, food supply, global heating, can all be traced to this gap, just “follow the money”.

The result of money creation in this way is the social disaster already reached by too many, as all parties, in their roles as individuals, workers, consumers, businesspeople, professionals, politicians, governing bodies, are bound in widening inequalities, local, national and international as if in a viral epidemic disease. It is also a planetary disaster, with wars, climate emergency, people movement and the possibility of a sixth extinction, into which we have sleepwalked. At one time, the apparently natural notion that commercial banks could be privileged to create money by issuing credit seemed practical and innocuous. Now, it is silly, when there are other ways to enable money creation, and other roles for banks, such as managing, exchanging and brokering the vast amounts of money we already have and need to use.

Money creation could begin with gift, which is also natural. A parent holds a different role from friend or child, a role of responsibility to give, to respond as well as possible neither by authoritarian regulation, nor by permissive laissez faire, but by giving alongside attendance to what is there and what is happening. In analogy, or in our psychology, it would be natural for government to take on this different role, to create, or arrange for the creation, of money that is solely for the development of the people governed. Such a government, however organized, by commons or election or even appointment, gives the money created and attends to needs and resources. Just as banks might not look so different in this kind of system, governments might also look much the same. The difference would be that the present vicious circle that pushes society into a black hole would be reversed, and money would have its more rightful place as a catalyst that matched needs with resources.


I acknowledge my debt (of gratitude, not money) to Michael Rowbotham: The Grip of Death, A study of modern money, debt slavery and destructive economics. Much of what I write regarding “money” began when I discovered the campaign organization Positive Money, and then shortly afterwards I read this book, which made great sense to me. I have digested and re-digested, so if I repeat Rowbotham’s sentences, because I have now made them my own, I can only say “thank you” and recommend the original.

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