Wednesday, March 26, 2008

Review of "Money as Debt"

To understand this post, you need to first view "Money as Debt" (the link is to Google video), a 47 minute animated feature by Paul Grignon. You can find out more about this video at

The Explanation

It is an  excellent, nearly perfect primer on how money is created, and what our money actually is, even though it misses a bit in the explanation.

It skips the details of how money is created, the issuance of government bonds and bills. That part of the story is not terribly important since they later point out the ridiculousness of the government borrowing its own fiat currency. So they do point out the big picture part of that point, and I suppose an animated short is not the place for a detailed examination of exactly how we're being ripped off, but I think it might make it more clear to a viewer, and thus easier to accept as truth.

The author either ignores or misses the idea that for money to be useful, it has to represent something that is useful to a consumer - goods or services. I see this as the main reason that people allow this debt creation to go on in the first place. Debt would likely not be so easily incurred if people equated each restaurant dinner, for example, to exactly how many hours of work, after taxes, it will require to pay back principle and interest.

The important point to understand when trying to make sense of these concepts is that money is not strictly necessary for a society to function. People can trade without money, money is just a tool that makes it easier. For a large, modern society to function with a high level of creature comforts, such as ours, money must exist. But separating the idea of money from the idea of products is why when this movie starts to talk about solutions, the viewer feels like they have still missed something.

They have missed something: when the bankers create that money, and receive the interest payments, it is not the money that we miss. We don't care if our money says 1, 5, 20, 100, or 100 million on the front of it, as long as the products we create, represented by our income, can buy us the products we want. What we miss is the spending power, or more specifically: food, clothing, shelter, entertainment, and the capital goods to make these things.

The point to be made here, and it wasn't entirely skipped even in this film, is that the bankers, and the government, are stealing those things from us.

It becomes clear why they omitted this point when they start to propose a solution. A solution that by their own arguments is worse than the problem.

The root problem

The crux of the problem this movie describes is that a small number of people are able to make the decisions about where and how capital is spent, to take a portion of the produce for themselves, and thus to keep people under their control, for the benefit of the small group.

The movie then says the correct solution would be to make that group smaller, allowing only the more powerful part of that group (the government) to make all of the decisions, and that if we do that, the group will suddenly decide that they don't really need very much of what we create, they will be happy to let us keep most of it, and if they don't we will rise up and stop them. There are so many problems with this idea it's hard to know where to start, but I'll try.

If we would rise up when the government started to steal from us again, why have we not done so now? Is it simply that the masses are ignorant? I think not, but if so, how would having a smaller group in charge make them more knowledgeable?  I can see how it would change the target of their ire, but the government is clearly responsible enough now (as mentioned in this film), and rising up against it would have as much chance of success now as then. A great man once said:

Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed.

If they do not rise up now, when things are facing crisis, what motivation will they have to rise up then? And even if we grant that they would rise up, their chance of success against such a power is no greater than the chance such an uprising would have today.

Leaving only the government in charge of the money supply doesn't fix any of the problems, it just changes the faces of the people in control, and even that is very limited because the people who are currently in control have the resources necessary not just to fight the government, but to become the government. To get elected all you need is money, and that is not something top international bankers lack.

The current system, as is accurately described by the beginning of this movie, has one major advantage that would not be present in the proposed solution: capital investment decisions are still made by investors who must repay loans or face dire consequences. Thus, business decisions currently are made by people who successfully forecast what consumers want, and supply it. Those who don't make the right decisions are drummed out of business by the bankers, thus preventing more capital from being spent where it is not wanted. In a system that has the government making those decisions, we've simply let the people who are currently cheating us have more power over us. Decisions will be made based on political concerns rather than for economic, social, or personal reasons.

We would have beautiful bridges to places no one wanted to go, parks with beautiful statues of the people who make the decisions, large well-lit grocery stores with shelves full of things no one wants, libraries with more beautiful statues but very few books, and certainly none that say anything bad about the people who bought them for us.

My inadequacies

Unfortunately, I'm not a very good writer. I never worked on it because I never thought I'd have anything important to say. I have something to say now, but the fundamental principles are so clear to me that I have trouble seeing the problem from the other side, the side many readers are on. I don't know your objections, or where I'm not making myself clear. Please leave comments telling me how horrible I am so I can address issues I've neglected.

The letdown

I can't find words to communicate how disappointed I was with this film. I have never found anything so close to mainstream that explained the problem so well. I was so excited. Then the proposed 'solution' came, and it's so much more horrifying than what we have now. Granted, what we have now can't last, but how is making the system worse going to make the symptoms better?

The Solution

I do have a solution to offer, and from the way the film mentioned legal tender laws over and over I thought for certain they were going to suggest the same solution I had in mind. I'm flabbergasted at how wrong I was. This film correctly points out over and over again that if it weren't for legal tender laws, we would not accept this worthless currency, and the system would not be able to victimize us any longer. Apparently, the problem is in that tiny misunderstanding: the writer seems to fail to recognize that money represents real wealth, but is not, in fact, the wealth itself.

Wealth can, and does, exist without money. The transition away from the fiat currency will be very painful no matter how it happens. Some people will lose everything. But wealth is created everyday, and it can be created everyday going forward from that point. People will need an easy way to facilitate trade, and they will use what seems best to them, and just as it happened before, money will be re-invented. Gold has inherent problems, but they are nothing compared to the problems of letting small groups make the decisions for everyone. The best part of a free market in money is that no one is forced to use money they don't trust, and systems can be easily put into practice that allow people who don't know each other, wouldn't like each other, and don't trust each other, or each other's money, to easily trade with each other.

It only takes one very simple piece of legislation, maybe one of the shortest ever, to make this possible. It has the added benefit of making the transition away from fiat currency as painless as possible. It has yet another benefit that is almost hard to believe, and that is that it has already been introduced into congress. It is simply a repeal of the legal tender laws. You may use fiat money, or you may use something else: shoes, wheat, gold, snowshoes, candy bars, or even the infamous widget.

The movie does make one telling point against this idea: it won't last forever. Someday, people will forget how bad fiat money is. They will forget how much of their earnings are stolen from them by governments and bankers when they're allowed to control the money. They will forget what we went through to give them sound money. They, like us and our forebears, will not even notice as evil groups again gain control of the people through control of the money. True. But it's not a reason to give those evil people complete control today. Let them wait.


- Trevor.


Jackson, GA

P.S. For more information, please visit: A non-profit organization devoted to reducing government harm through relentless pressure where the ballot box always fails.

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Jacob said...

I get your idea about how it would be unproductive or even harmful to move the power away from the bankers and to the government. However, one very great benefit would be achieved that has not been mentioned: removal of inflation.

Inflation is a force at work at reducing the value of our money that is entirely created by this system. If government could produce our money and regulate it directly, we would have no inflation.

Additionally, we would also have no debt and interest to repay, and as a result require less of our taxes to repay these obligations.

While a fiat currency may not be a sustainable idea in the hands of whoever controls it, we would benefit greatly if we did more directly control it as we would through our government.

Trevor said...

Thanks for the comment, Jacob.

I think that you and I look at the world in very different ways. I'm certain that I don't have the skills to explain my point of view well enough to convince anyone, and if I did it would take a lot of writing, because we're starting so far apart. I'm sorry that my reply to your comment is going to be less than satisfying, I wouldn't say anything but I don't want silence to be mistaken for agreement.

Inflation is entirely a product of the government controlling the money, as they do now. Since the government already has complete control of the money, there's no way to give them that control.

I'm aware that the Federal Reserve is a private corporation, but that's only because when it was created, there were still some people in the country who cared that the Constitution said we could not have a central bank, so it was made private and thus "constitutional". The board of the Federal Reserve serves at the will of the government, and profits go into the US Treasury, so I'll say that by any definition that matters, the Fed *is* the government.

Even if that were not the case, giving a government power over money is not the cure for inflation, but the cause of it. True money has value of its own, government issued money does not. The effect known as inflation is simply a reflection of that.

We don't need government involvement in order to control the money ourselves, we just need the government to stop telling us what money is. Once we're free of laws telling us we have to accept Federal Reserve Notes as "Legal Tender for all debts, public and private," then each of us can use whatever money we feel is sound (most people will choose gold), and then there will truly be no inflation.

The problem with a blog comment is that ideas like what I said above just sound silly in today's world. This is not by accident, and not by conspiracy either. It's simply that people get used to doing things "the way they've always been done," and it takes some looking at a new idea before it starts to make sense.

I'm not trying to change your mind, Jacob, and I truly do appreciate the input. If you're interested, you might try googling "Murray Rothbard" "Ludwig Von Mises" and "Austrian Economics". But please don't feel like it's an assignment or anything...

Thanks again,
- Trevor.

Mike B. said...

The thing that absolutely ticked me off the most was learning that my bank created money for me to buy a house and then turned around and expects me to labor and toil my fingers to the bone for 30 years to pay back twice the prinicple amount.

The question I have that the right way to look at it. If so then the video adequately explained that there is simply no need for such excessive interest charges.

The bank never had the money in the first place. So why should I pay hundreds of thousands in interest to an entity that manufactured money out of thin air.

Why not limit private interest that banks can charge? Or make the banks public entities that service the public at cost rather than for a profit.

Anonymous said...

1. Obviously his proposed solutions have a fundamental flaw.
2. Human beings are greedy , we want to have more , we want to grow(in all forms ).
3. This system proposes that the human beings stop growing.
4. Economy has two facets:
1. Resource consuming
2. Non Resource Consuming ( media , entertainment , service sector)
5. Currently these two are linked and NRC eventually gets converted in RC in some because one buy car buy house etc with funds created by NRC and usual.
6. Infinite growth is fine it address human basic instinct mentioned in point 2.
7. However infinite consumption of Resource is not fine poses grave threat.
8. Our challenge is to go into a perpetual resource cycle. Like a super conductor resource system. A renewable resource system.
9. Our Economy keeps growing ( basically we move to NRC for growth) and resource consumptions is perpetual or in harmony with nature(earth).
10. A resource system which can sustain demands by not increasing its size.
11. To develop this I am sure our socienty will catch with it by developing required technologies .
12. First stage will be partial Self Sustenance for human society.
13. Second stage will be complete self sustenance.
14. Recycling , Nuclear fusion etc will drive the way.

And for now , growth of economy can be reduced by reduced interest rates that keeps tap on global addition of debt money. Also we have cyclical economy dips which drop the overall growth curves.

- Puneet

WudIzThePoint said...

Trevor, I found your post last year on the “Money as Debt” video, and I have never forgotten it--well done and very sincere. I also was disappointed with the video in the same way as you. I would encourage you to keep writing on the topic of money and/or talking with others about it. We can only hope that someday the ideas of sound and free market money, as advocated by the Austrian school of economics, take hold on a broader scale.

Before your post, I had never heard of -- I have not checked it out enough yet to be sure how I feel about the organization, but I do thank you for linking to this site in your post. Otherwise, I'm unsure I would have found it. I don’t recall seeing links to it anywhere else, but they must be out there.

The following Milton Friedman video I thought was a good primer on how money creation leads to price inflation. I realize Austrian economists do not see eye-to-eye with Friedman, but I think the notion of too much money created by government as the cause of price inflation is an area of common agreement.

The Friedman video is an interesting look back to a time when America was suffering from high inflation (and people knew it), just before the Fed moved to choke inflation off with high interest rates and allow a severe recession to take hold. Interestingly, most people I think have been oblivious to the price inflation that has built back up in our economy subsequent to that time. Seems like last year was the first time I can recall when price inflation, at least briefly, again became a somewhat major topic in the news.

Milton Friedman on PBS in his Free to Choose series (1980) Vol 9 of 10 - "How to Cure Inflation"

In the latter part of this video somewhere, Milton had a good rant on the evils of price inflation calling it a destructive force. You probably are aware of this other video put out by the Ludwig von Mises Institute on Money, Banking, and the Federal Reserve.

All the best.

Prosey said...

I appreciate your critique of this film - particularly the solution. There are many different critiques that I have found - and am grateful for all of them.

That said, I'm also glad to have seen the film, because the film opens eyes to the darker reality of the banking system - and without that exposure, people are kept blind. I don't think a lot of people have any clue about how currency is manufactured or how "money" is actually just an idea.

Anyway, thank you for your insight - I have bookmarked your blog for further reading.

Kind regards. :)

Walt said...

I think your critique of the movie is simply reflective of a difference in worldview. you say that the film suggests making the group of those who control money smaller, yet (I'm sorry) this is just false. you hear the word 'government' and think 'small group of autocrats'. It would be a useful exercise, I think, to ask why. The way the film uses the word, 'government' means 'will of the people'. Your implication, as I read it, is that government is inherently bad and must be leashed. The film suggests that, if banker technocrats didn't control it, the government could be whatever we, the people, make it. You seem to assume that people are naturally greedy, where the film suggests that people are greedy when they fear scarcity. I was not let down at all by the proposed solutions in the movie(s). Again, it may be useful to ask yourself where you got this idea that government is *inherently* bad, as opposed to being an amoral tool. The government is the people that run it, and those people, just like you and I, work for the people that pay them, which, sad to say, isn't currently you and I. It is, rather, capital-intensive industry, such as banks (the big one!), oil firms, healthcare firms, insurance firms, etc. This last point isn't just my opinion; it's a matter of public record ( The day the government is paid by you and I will be the day that it works for us. Conversely, industry, as it stands today, isn't even *potentially* controlled by the population. One might say, 'but what about our free market system?' to which I'd reply 'we don't have one.' Lehman Brothers, Bank of America, Goldman Sachs, GM, they don't suffer free market knocks like you and I; they get their bought-and-paid-for government to give them welfare. Again, the goverment works for the people that pay them. that could be us. I humbly suggest you ask whether or not we should blame the hammer or the guy swinging it at our faces. If I get hit in the face with a hammer, I'm mad at the guy that swung it, not hammers.

Trevor said...

Thank you for an incredible comment, Walt. As you might guess from how long it's been since I've posted to this blog, I don't have much time to write anymore. I will again, and hopefully I can attract the same kind of commenters I've attracted to this post, especially ones that disagree with me and are clear and well written like yours.

I wish I had time to really respond well, but I do want to quickly say that you're exactly right, I *do* see government as *inherently* bad. I don't disagree in any major way with any of the other points you've made.
I did not come to this way of viewing government accidentally or easily. There are two major (and hundreds of minor) reasons that I still espouse this view. 1. Government is force. If the job doesn't need or use force, there is no need for a government to perform it, any organization or individual could do it. The only difference between a government and any other organization is a monopoly on force, and further it's usually practiced as if the force is justified, giving it the illusion of morality. I realize that this may be a semantic difference in some cases, and by this definition you may not be talking about a government, but I don't think that's the case here. You say, 'will of the people', and I say ok, that might be good for the majority, but what if you're not in the majority? I don't believe in the concept of a 'people'. I mean of course it exists as defined, but it *does not* have a will. It has one will per person, and just because most of them agree on a point, doesn't make it the will of the others.

and 2. Even if there were a 'will of the people', using a government to enforce it necessarily implies that there will be enforcers. Having enforcers necessarily implies someone to set rules for those enforcers, and that leads us back to 'small group of autocrats'. You could call it mission creep. Good people in charge can become corrupted, and corrupt people will be attracted to these positions of power, either to corrupt those in the positions, or to be in those positions themselves.

Well, that just barely scratches the surface, and probably does more harm than good because, at least for me, going from the point of view that government was basically good, but possibly a little corrupt, all the way to believing that government is inherently bad was a huge paradigm shift, and took a long time. Stating the conclusion before the facts to back up that conclusion is not usually persuasive. I hope when I eventually get around to writing more you'll still be here to continue the debate.

Again, thanks so much for such a cogent comment - you certainly *nailed* our area of disagreement dead center!

Marko said...

Trevor you said this:
"The current system, as is accurately described by the beginning of this movie, has one major advantage that would not be present in the proposed solution: capital investment decisions are still made by investors who must repay loans or face dire consequences. Thus, business decisions currently are made by people who successfully forecast what consumers want, and supply it. Those who don't make the right decisions are drummed out of business by the bankers, thus preventing more capital from being spent where it is not wanted. In a system that has the government making those decisions, we've simply let the people who are currently cheating us have more power over us. Decisions will be made based on political concerns rather than for economic, social, or personal reasons.

We would have beautiful bridges to places no one wanted to go, parks with beautiful statues of the people who make the decisions, large well-lit grocery stores with shelves full of things no one wants, libraries with more beautiful statues but very few books, and certainly none that say anything bad about the people who bought them for us."

This is simply not true. Loans would be approved as they are today, only you would not ask for interest back, only the principal. Therefor people would still go bankrupt if they produce what noone wants.

Bruce L Grubb said...

While Money as Debt produced some good food for thought it got one point of history so wrong that it was hard to take it seriously past that point. The historical blunder is regarding the First (1791-1811) and Second (1816-1836) Banks of the United States. They were effectively the Fed of their day but unlike the fed they had a limited (20 year) charter.

The chaos that followed Jackson's destruction of the Second Bank as a viable institution is known as the "Free Banking" era where state banks did basically anything in regards to reserve requirements, interest rates, the necessary capital ratio, and about anything else to whatever they bloodly well wanted. Worse with no national oversight these banks would effectively print their own money in the form of Bank notes.

The National Bank system created in 1863 reigned in some of the chaos but left liquidity problems with the worse being the Panic of 1907. It is that Panic that takes up to the creation of the Fed.

Mike said...

You say the movie's solution is flawed because it would put the control of the money in the hands of the government, and this would be catastrophic because the government would then steal our money more easily.

However, I think their point is that the government, in a democracy, is the representative of the people. So, it would not be the government 'stealing' from the people, it would be the people deciding what they wanted to do with the surplus for the good of the community and the general welfare.

Jake Sterling said...

This is a comment on the original animated video, Money as Debt.

Another problem with the argument presented is that it assumes that interest paid on a loan disappears when the loan is repaid. This is the basis of the argument that creating money through lending inherently leads to inflation: the idea being that if you have to pay back more than you borrowed, it will force everybody to borrow more and more to keep up with interest payments. Thus, more money for the same amount of goods and services, which is inflation.

However, when debts are repaid to a bank, only the principle is taken out of circulation. The interest is money paid to the bank as an enterprise, and it stays in general circulation because the bank pays it to investors who spend it or spends it itself. So, the net sum from the borrowing/repayment transaction is zero, not a negative amount, as the video claims.

There are lots of ways that wealth is siphoned away from the middle classes into the pockets of the rich, but this is not one of them.

Trevor said...

@Mike: I didn't miss that point, I attempted to refute it.

BarbaraNH said...

I respect your impatience with and distaste for what you are calling "government," which, as far as I can tell, represents to you an authority that can force you to do things you might not like, or that you think are not in your own best interest. I am guessing that it seems to you just common sense, therefore, that the bigger (stronger) that authority is, the less control you have over your own life, and therefore the important thing is to keep it small (weak).

I'd like to comment on that line of thinking, however, in the hope that you might take into consideration what it leaves out.

What it leaves out (not to be glib) is the whole history of human civilization. People have been wanting to keep what they get and to do what they choose since forever, without success. The closest we’ve come so far, I think you’ll agree, is the market-based economy and the democratic form of government. The market-based economy fosters individual initiative and choice. Democracy decentralizes political power. Of course, it demands compromise in the form of majority rule. Nobody likes to compromise, but the way we do it here, that is, with a bill of rights and the consent of the governed, is about as painless as it gets. Unless you want to go into the wilderness where you don’t have to compromise with anyone (except nature), you just can’t have it all your own way, right? I have to assume you agree.

The next leap in your argument, however, is where we disagree. I don’t see how “bigger (stronger) government” automatically leads to individuals having less control over their own lives. Actually, it’s just the opposite, and our experience over the past thirty years demonstrates it.

What matters is not the size of government -- that’s a fallacy. What matters is whether the government, whatever its size, is as democratic as possible – whether elections are fair; whether legislation is written in the interests of the society as a whole (“the greatest good for the greatest number,” John Stuart Mill, etc.); whether the justice system enforces the law; whether the courts are unbiased, etc., etc.

Our problem today, first and foremost, is our economy, not the size of the government. The economy has changed from market-based to monopolistic, or oligarchical. Multinational corporations, interstate insurance conglomerates, pharmaceutical behemoths, global financial giants that integrate banking and investment -- such consolidation and integration of industry and commerce have resulted in a concentration of a huge part of the country’s wealth and power in the hands of a incredibly small elite, and that elite now all but controls our government.

This has happened not because government is too big (strong), but because it has been too weak, corrupted by a kind of feedback loop between financial power and political power. It has become, in the past thirty years at least, less democratic.

Now those same powerful private interests would have us believe that “government” is the problem. In truth, only government can provide a solution to the current state of affairs. We need to demand that government institute strict regulations and dismantle the huge private capital forces that have hijacked our market-based economy.

This can only done through political power, the power of the government -- a government of, by, and for the people. Our strength lies not in reducing government power, but in making government work for us, making it rein in the powerful financial forces that we as a people otherwise have no power to change.

We need to keep our eye on the ball -- government is not the enemy. Unregulated finance and corporate capital is the enemy. Government -- the power of people -- is our only hope for a solution.