Whose Money?

THE  NATIONAL  DEBT

Before taking a closer look at exactly how the present debt-based financial system affects you, we need to deal with the question of the national debt.

The national debt exists for one reason  only, and that is because  monarchs gave up their right to create  money and handed it to the banking industry.  Since  then, far from the state creating  our means of exchange and spending it into circulation  free of charge, governments have chosen to fall increasingly into debt , while taxing us punitively to service their ever-growing liabilities.

This situation dates back to King William III.   Already  in debt, and heavily embroiled in warfare, William found himself unable to pay his army.  The Bank of England was therefore set up  by private bankers, and granted a Royal Charter on 1 June, 1694, agreeing to lend the king money in return for becoming sole bankers to the Treasury, and enjoying the right to print bank notes.  

By  2005, William's £1.2 million of debt had ballooned into a monstrous claim of  £417 billion against  the nation.

So why does the national debt keep snowballing?

We are frequently told that the national debt is a debt we owe to ourselves, but this is not the case.  The bonds which constitute the national debt do not represent sums owed to the nation.  They represent sums owed to specific funds, businesses and individuals.

When its bonds mature, the government has the problem of finding the money to redeem them.  Since the total tax yield cannot hope to cover both this obligation and the usual year-on-year increase in public expenditure (inevitable under an inflationary debt-money system, whether or not there is an increase in the scope of the public sector), the only solution is to offer ever greater quantities of bonds for sale.

In this way, the national debt is never actually repaid  -  indeed, it is essentially unrepayable  -  but is perpetually rolled over and increased from year to year, with fresh borrowing always being undertaken to cover the sums that fall due.
 

Very occasionally  -  by, eg, punitive stealth taxation, the sale of national assets, a raid on people’s pension funds, etc  -  the remorseless accumulation of debt has been temporarily halted, or even marginally reversed  …  only to start climbing again in subsequent years.  The routine situation, however, is that the government is unable to collect sufficient money in taxes both to cover current spending and service the national debt, and is therefore forced each year to borrow more . 

According to orthodox economic theory, governments should only need to take on extra debt to ease short-term cash flow problems, kick-starting the economy when money is scarce, and paying any borrowings back when normal functioning has been resumed. 

The fact that no country in the modern world which has acquired a national debt is now able to prevent its growth, let alone pay it back, suggests that this theory is nonsense.  

It is significant that successive UK governments have cut the annual deficit (that is to say, the yearly increase in the national debt, not the grand total of the national debt itself) from a post-war high of 250% of GDP to its current level of around 40% of GDP, with Gordon Brown, in his budget of March 2006, promising further cuts ahead.

Michael Rowbotham, in his outstanding book, “The Grip of Death”, argues  that, however undesirable national debts may be, they do help to alleviate the inherent financial scarcity caused by our debt-money system, by distributing extra money; and he describes the progressive post-war axing of Britain’s deficit as, “The most profoundly restrictive financial policy that has been pursued anywhere in the world”.

The result, he claims, has been that, during the past fifty years, lack of government support to UK economic activity via the national debt has combined with an unprecedented fall in debt-free notes and coins as a proportion of the money stock to make it increasingly difficult for ordinary people to maintain their standard of living without going into debt: and, in order to put sufficient money into circulation, industry, businesses and now, above all, individuals and families, are increasingly being forced to make good the difference by going into the red en masse, on behalf of their country.