The method of money creation dictates how we mobilize resources and shape our society.
Money created by debt, which is what we have now, unquestionably delivers the goods but to who and at what cost?
Is it within our means to build a system that facilitates improving quality of life while putting back more than we take? Can we have an economy that thrives while consuming less? I believe we can and the key to achieving this is at the very root of how money is created.
Most of the people I talk to don’t think much about where money comes from.
We are indoctrinated into beliefs about money from the time we start learning to talk, a deeper understanding of money is not needed to make good use of it. But a deeper understanding of money and how it is created with debt reveals the inherent flaws in the system that can’t prevent the unfortunate side effects like pollution and income inequality.
The current money supply is created by banks when they make loans
The point I am trying to make is that the way money is created has the power to shape society, and changes to the way money is created can help solve many of the most pressing challenges we face today. The first step to understanding this is to realize that the current money supply is created by banks when they make loans.
For some, this is hard to believe, and for others, it is too much to take in, but, as far as I am concerned, money is created out of thin air through debt by banks when banks make loans. These loans come with an obligation to be paid back so the only actions that can be initiated with debt money are ones that make a profit. Everything else has to get their money from taxes or charity. This system makes it possible to have an unaddressed need like fixing a bridge go undone even though there is manpower standing on the sidelines and materials rotting in storage.
As I already mentioned, money has the power to shape society at its point of creation, so some of the significant challenges we face, like income inequality and environmental destruction, are directly linked to the way money is created.
Moving beyond money creation through debt
So, for argument’s sake, let’s say we agree that fiat money, like the US dollar, is created when banks make loans. If this is true, which it is, then what does this mean for prioritizing the deployment of our human and natural resources?
When money is created through debt, it comes with an obligation of paying back the loan. This limits the creation of money to actions that can make a profit to pay back the loan. This is a fantastic system for delivering goods and benefits of our debt based system should not be understated. But debt created money is not so great for nonprofit sectors of the economy like infrastructure, healthcare, and education.
The invention of credit made it possible for us to deliver the goods like no civilization before us. The problem is that debt-based money alone is an imbalanced and incomplete system. The inadequacies appear in the form of poverty and environmental destruction.
There is no reason to have poverty or pollution with the modern-day technologies at our disposal. These problems stem from an inadequate money system incapable of allocating resources to any sectors of the economy that are not for profit.
My goal here is not to bash the system we have. Our system is good but in my opinion, it can be better.
The new money system I am talking about creates money through labor instead of debt. Money is created to fulfill projects that don’t fit a traditional profit model but are good for people and good for the planet. Projects like cleaning up the plastic cesspool in the ocean or investing in people’s health and skills, so they are more productive in the economy. Money is created with labor while investing in human and natural resources. The money supply trickles in through the efforts of many while adding value to the community as a whole. It is available then as a means of exchange and a store of value just like debt-based money.
The way money is created has the power to shape our world. Our system of debt-based money has made it possible to deliver goods and services on a level never before seen but at the cost of harming the environment and exploiting the majority of human beings. The method I am advocating here is to create money through labor by investing in human and natural resources. How this will happen is yet to be determined.
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