If We Don’t Change the Way Money Is Created and Distributed, We Change Nothing

Many well-intended people want to reform the status quo for all sorts of worthy reasons: to reduce wealth inequality, restore democracy, create good-paying jobs, and so on.

All these goals are laudable, but if we don’t change the way money is created and distributed, nothing really changes: wealth inequality will keep rising, governance will remain a bidding process of the wealthy, wages will continue stagnating, etc.

If the money creation/distribution system isn’t transformed, “reform” is nothing more than ineffectual policy tweaks that offer do-gooders the illusion of progress.

Mike Swanson of Wall Street Window and I discuss the The Future of Currencies and CHS’s New Book A Radically Beneficial World (33:21)

Few are willing to admit that the way we create and distribute money at the top of the wealth pyramid necessarily generates increasing wealth inequality because once we admit this, we realize 1) the money system itself is the source of inequality and 2) we have to change the money system if we want to stave off the inevitable rise of wealth inequality to the point that it generates social disorder.

In the current system, money is created by central and private banks at the top of the wealth/power pyramid, and distributed within the top of the wealth pyramid. The only possible output of this system is rising wealth inequality and debt-serfdom for three reasons:

1. Those with first access to nearly free money can outbid savers and serfs who must borrow at much higher rates of interest to snap up income-producing assets. In effect, borrowing unlimited sums at near-zero rates guarantees that those with this privilege have a built-in advantage in buying income-producing assets. The only possible output of this system is the rich get richer as they buy up all the most profitable and lowest-risk income-producing assets.

2. Those who can borrow virtually unlimited sums at less than 1% interest skim vast wealth by loaning the money out to everyone below the top of the pyramid at 4% (mortgages), 8% (other loans), and 18% (credit cards). This funnels much of the national income stream to those who can borrow cheap and lend the money at much higher rates.

3. Since the wealthy already own most of the income-producing assets, the easiest way to boost their wealth is to bid up those assets with cheaply borrowed money. For example, borrowing $100 million and using it for stock buybacks leverages the value of the shares by far more than $100 million.

Three different perspectives of the wealth pyramid illustrate how our money system generates wealth inequality as the only possible output of the system:

The system of central banks, private banks and fractional reserve lending is global. The net result is that globally, the vast majority of wealth is owned and controlled by those at the very apex of the wealth/power pyramid: the top 8% own 85% of global wealth.

In the U.S., the wealth-income pyramid can be represented by an inverted pyramid: the bulk of wealth and income are in the hands of the top 5%. The bottom 80% own an essentially trivial percentage of the national wealth.

This pyramid illustrates how the money creation and distribution pyramid works:

There are a number of proposed alternatives to this the rich can only get richer and the rest of us can only get poorer system. The only real solution in my view iscreate and distribute money at the base of the pyramid, to those generating useful goods and services in the community economy, rather than to those in the top of the pyramid. This money isn’t borrowed into existence, so there is no interest to be skimmed by its creation.

I explain how this works in my new book A Radically Beneficial World: Automation, Technology and Creating Jobs for All.

Mike Swanson and I cover many other related topics in this podcast: The Future of Currencies and CHS’s New Book A Radically Beneficial World (33:21)

My new book is in the top 10 of Amazon’s category of international economics: A Radically Beneficial World: Automation, Technology and Creating Jobs for All. The Kindle edition is $8.45, a 15% discount from its list price of $9.95.

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    • berger friedrich-wolfgang

      HM , Kill the SNAKE ???

      • If you will read this you will find everything put together already for you like this sample.

        5. The “war on terrorism” is a war of conquest. Globalization is the final march to the “New World Order”, dominated by Wall Street and the U.S. military-industrial complex.

        6. September 11, 2001 provides a justification for waging a war without borders. Washington’s agenda consists in extending the frontiers of the American Empire to facilitate complete U.S. corporate control, while installing within America the institutions of the Homeland Security State.

        7“The forbidden truth” is that Western governments including US, UK, France, NATO and Israel –while waging a self-proclaimed “Global War on Terrorism”– routinely provide covert support to the same terrorist entities which are the object of their “humanitarian wars” and “counter-terrorism operations”.

        War and the Economic Crisis

        • berger friedrich-wolfgang

          Thanks for Bringing the Unimaginable Totalitarian NATURE of THREATENING ANNIHILATION down to a Point , Where Everyone has the Chance , to take Correlated MEASUREMENTS ! MAY EVIL GET , What it DESERVES !!!

  • Lynn Walker

    If you don’t know what you want to change to there is no reason to change. CHS speaks theory well, but he has know concept of where we should be going because his intelligence is grounded in the very system he critiques and his knowledge of outside systems is virtually non-existent. Thus his ideas for improved change are naive, irrelevant or foolish.

    Wealth inequality is not a problem. Inequality is unavoidable, nor is it wrong. Inequality based on fraud or violence is the problem, which is to say that fraud and violence used to accumulate wealth are a problem. Focusing on inequality takes you in circles leading nowhere.

    Restoring democracy is another foolish proposal. It assumes there ever was a democracy, a doubtful proposition, but more importantly, democracies are the most dangerous and foolish form of governance imaginable. Hitler and now Trump demonstrate the danger, where a block of 50.1% of the population can “vote” to eat the minority population if they choose. The foolishness is allowing the lowest level of the population to become involved in policy decisions. Until we have eliminated intellectual inequality democracies will never be running at better than half-stupid.

    CHS draws on failed systems throughout history for advancing his theories, in apparent isolation from successful systems, which I’m guessing he is not even aware.

    CHS arguments appear very wise but are grounded in a fantasy world of his intellect, not the world we live in. We should also take note that Mr. Smith’s comments here are promotional pitches for his published works, or advertisements. That alone should concern you, because it represents a hidden agenda that he does not convey in his message.

    This should remain a forum for debate not product advertisement.

    • mulga mumblebrain

      So, what is your idea of a ‘successful system’? And are there any limits to your concept of ‘legitimate’ inequality?

      • Helen Mucus

        A government who can create a country its own people want to live in is a good start. Did you know that, according to Global Times 67% of rich Chinamen, the very people who have benefited most from China’s “reform and opening up” want to emigrate? They don’t want to be PRC citizens anymore, and don’t want to live in a “rising” China. The funny thing is, given how nationalistic so many PRC Han are, their favorite immigration destinations are all liberal Western democracies…money talks, BS walks.
        Are you a Chinaman?

        • mulga mumblebrain

          Oh mucilaginous one, I rather wish I was Chinese. That or Russian. The preference for ‘liberal Western democracies’ is easily explained. Liberal Western democracies are plutocracies, where the rich rule and the serfs know their place. Rich thugs, Chinese or otherwise, are usually scum-bags.

          • Helen Mucus

            You can live in China if you wish, the country welcomes pedophile Engrish teachers. As long as you are white a job is guaranteed!
            Liberal Western democracies maybe this and maybe that, but they are DEFINITELY the post popular choice for PRC Han with money.

          • mulga mumblebrain

            Fair enough, mucliage, you hate the Chinese system. But the gratuitous reference to ‘pedophile’ seems to paint your character in rather unflattering light.

  • jadan

    “If We Don’t Change the Way Money Is Created and Distributed, We Change Nothing”. Absolutely correct! This is key. The proposal to achieve fairness in the monetary system that has gotten most attention in the last few years was put forward by Dennis Kucinich as House Resolution 2990, or, the NEED Act. The private system called The Fed, is subsumed into the Treasury. The government no longer generates a national debt by borrowing from the plutocracy at interest in order to fund its operations. The private debt money we call “Federal Reserves Notes” is eliminated and replaced with Treasury Notes or “Greenbacks”. Commercial banks no longer create the money supply. The money power is returned to the sovereign government per the Constitution. This is a revolutionary act. The elite will not concede their privilege easily.

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  • mulga mumblebrain

    I think that it represents the height of wishful thinking to imagine that the ruling psychopaths will EVER surrender their advantages. I’m certain that they will shed oceans of blood to avert that outcome. In any case the ‘Free Market’ capitalist system that empowers this parasitism has destabilised the planet’s life-sustaining ecosystems so greatly, with NO sign of that behaviour being reversed, that all consideration of a different system is moot, because too late.

    • Silverado

      I agree. If it came to a choice of either helping the working people or letting the system implode these criminals would let it implode. They’re more like a thug robber who lifts your wallet at the point of a gun and then shoots you anyway after taking it. And while CHS the author writes about and has many fine ideas that are related to our sick economy he constantly underestimates the bad guys in all of this world-wide chaos and how truly despicable this bunch of psychotic neocons really really is.

  • margsview

    Always wondered if all of these facts were so important then why are the offered answers —kept, until payment received…..It reminds me of these secret trade agreements, negotiated in secret but all will be revealed to cost only taxpayers–thru constant dumping of all corporate expenses via lawsuits under the ISDS investor-state dispute settlement clauses in each and every trade deal known—see bilaterals.org (unlike your site—the link gives free info and analysis on all global trade deals)…..Who would have thought ???

  • Steven

    Our problems go far beyond just how money is created. Even ‘monetary reformers’ seem to miss this. At the root of our civilization’s unraveling is a society that “knows the price of everything and the value of nothing”; or put another way a civilization that has no conception of what constitutes ‘wealth’. Money is a claim on wealth, or from the perspective of the social entity in which it is accepted, a debt – an obligation to furnish the bearer of money ‘wealth’ equivalent to the value of the sum rendered.

    We have spent more than two centuries substituting machines powered from inanimate energy sources for human labor in the process of creating the means of subsistence, AKA ‘wealth’. We’ve spent nearly a half-century off-shoring the remaining jobs so CEOs, financiers, bankers and other ‘economic rent collectors’ could continue amassing their claims on society’s wealth. The promise of all this ‘progress’ was the growth of a services industry that was supposed to offset the lost employment opportunities. But the only ‘services’ industry that has grown is the military ‘services’ industry – with the objective of assisting the claims of the world’s wealthiest citizens to grow beyond their host countries.

    The resulting competition between economic elites produced two world wars in the last century. How
    in the world do people like Smith and other monetary ‘reformers’ think simply changing how money is created is going to change anything (other than giving ‘the people’ a bigger stake in the Great Games played by the world’s economic elites? Until Smith comes up with a better suggestion for how to
    employ the billions of the world’s people separated from the opportunity to provide for themselves by the various ‘enclosure’ movements since the beginning of the Industrial Revolution, perhaps he should cut those “do-gooders” a little more slack.

  • rentslave

    The top .7% go all out to ensure that the bottom 80 % are never allowed to invest in sporting outcomes,going so far as to bribe Federal judges to reverse previous rulings along with purchasing members of Congress to keep Nevada’s monopoly intact.

  • Joseph Alexander

    The promise of all this ‘progress’ was the growth of a services industry that was supposed to offset the lost employment opportunities. But the only ‘services’ industry that has grown is the military ‘services’ industry .Lakers Snapback Caps