Your browser does not support modern web standards implemented on our site
Therefore the page you accessed might not appear as it should.
See for more information.

Whatcom Watch Bird Logo

Past Issues

Whatcom Watch Online
A Fantasy (and It’s Been Privatized)

January 2015

The Money System

A Fantasy (and It’s Been Privatized)

by Stoney Bird

Stoney Bird is a retired corporate lawyer, who spent most of his time in that role manipulating transactions so that money would flow into his employer’s hands — or at least not flow out.

Part 8

This essay began with the January 2014 issue of Whatcom Watch. For an overview of the series, see that issue.

This series is an attempt to address some of the impediments to democracy in American society. Earlier articles covered the Lewis Powell memorandum, the Constitution, the electoral system and the job system — all of which have contributed to our system of unrepresentative and plutocratic government. The present article will largely be devoted to laying out some of the basics of the money system, the system’s contributions to unrepresentative government to be spelled out in future articles.

No graven images may be worshipped, except the currency.

— From The New Decalogue, Arthur Hugh Clough1

“None of this —t his so-called ‘money’ — really matters at all. It’s just an illusion.“

— Ben Bernanke, Chair of the Federal Reserve2

It’s hard to know where to start with the money system. It consists of one fantasy built on another, from top to bottom. The greatest fantasy is that it isn’t a fantasy. Where money is concerned, people who think of themselves as hard-headed usually believe that they are getting down to ‘reality’.

This core fantasy may have arisen because belief in money is so widespread and so ardently held that people confuse their beliefs with what is actually there.

Or it may be because of a consequence of the first belief: those with money get to decide things for the rest of us. We allow them to have that power. They can give us jobs or withhold them, tell us what to do, charge usurious interest, buy the government, get out of paying taxes – all this supported by state violence. It’s easier for the rest of us to go along than to stand up and say the Emperor has no clothes.

In any event, the money system is founded basically on belief. Like the belief in God, or the belief in Santa Claus. And like the dogmas that many claim come from God, the belief in money orthodoxy has frequently been buttressed by resort to arms — even when people are starving for lack of those little pieces of green paper.

Paradoxically, money is also founded on distrust. If you have something of value (a thing, your labor, a promise) and give it away, you have no assurance in a society of impersonal relations that you will get anything in return. If you get money in return — so the system of beliefs assures us — you have again something of value which you can exchange for things that you can actually use (or eat, or live in).

Because of this distrust, money relations are nearly always infected with a certain level of hostility, insecurity and competition. Have I gotten the best deal? Is the other guy trying to screw me? Can I get away with charging more? Have I read enough ads?

The Origins of Money are in War, Debt and Slavery

There’s good reason for these negative emotions around money, and that’s because the widespread use of money arose to support the waging of war.3 A turning point for human society was what scholars refer to as the Axial Age. This was the time of Confucius in China, of Buddha in India, of Plato and Socrates in classical Greece, and of Isaiah and other Old Testament prophets in ancient Israel. In all of those places, times of perennial war had broken out. Life was harsh and precarious. Every city had its warlord. Since the warlord wasn’t exactly a figure of love for the locals, they wouldn’t fight for him out of loyalty or local pride. He had to capture slaves for the farms and hire mercenaries for the armies. To pay the mercenaries, he had to have money – so he resorted to the two things that governments have relied on ever since to support their war habits: borrowing and taxing.

With around 40 percent of what we pay in income taxes in the U.S. being used for war, we follow in that grand tradition.4

So here is the complex of phenomena which gave rise to widespread use of money:

war – debt – slavery – money.

Those philosophers and religious innovators, incidentally — Confucius and the others — all thought there ought to be some way other than war and violence to relate to one another. They were reacting to a situation — then found in the centers of “civilization” all over the Eurasian continent — where life was, in Thomas Hobbes’ words, “solitary, poor, nasty, brutish and short”5 — precisely because of the war-debt-slavery-money complex.

What had the war-debt-slavery-money system replaced? The conventional story that economists tell is that money replaced barter – and was a great improvement because it was much more flexible and could be stored and didn’t spoil. But the conventional story is incorrect. In most places, exchanges were not in a formal tit-for-tat barter system at all. People just shared. The level of organization was primarily local: the village, the valley. Everybody knew everybody. The well-being of all depended on the well-being of each. As Karl Polanyi has observed, “organic society … refused to let the individual starve.”6

In Our System, What Creates Money Is Debt

Apart from its origins in mutually-inflicted human misery, money is suspect because of the way it is created in our present day. It’s coming to be common knowledge, but it’s worth repeating: money is created in our system by nothing more than banks making entries on their books. If you take out a mortgage, the bank makes an entry in its books putting the amount of the loan (let’s say $200,000) into your account, and a balancing entry saying that you owe the bank the same amount — plus, of course, interest.

Before the bank made those two book entries, the $200,000 didn’t exist. It’s not that anyone “made” any money and then put it in the bank, and it’s not that the government “printed” the money. The bank simply created the money by making the book entries.

All the money in our system got created like that: out of thin air. There is nothing behind it ultimately except our respective promises to pay our respective banks.7 Of course, there are powerful incentives to keep you paying. If you don’t pay, the violence of the state will be unleashed on you. The Sheriff will sell your house out from under you. Your wages will be garnished. If you resist, you’ll be put in prison. So the association of money with debt and violence is still with us.8

Note that the system protects the banks every which way, and not just the banks but the bankers. Our recent experience of the bank bailouts is an example, one of many in the history of banking since the Industrial Revolution. Through deregulation intended to promote “creativity” in the financial system, the banks basically engaged in fraud, inventing and selling financial instruments that they either misrepresented or were incapable of evaluating in the first place, butand gettingot rich on the commissions before their fraud was found out. The collapse of 2008 was the result. There are more in the making. Joseph Stiglitz, a Nobel Prize Winner in Economics, noted a couple of years ago that the GDP of the entire world was $70 trillion. At that time, the value of the financial fabrications known as derivatives that were floating around the London-New York-Tokyo axis was $700 trillion — a collective value ten times the value of what the entire world was producing.9 Before long, we’re going to puncture that bubble, too. 2008 will be seen as the Little Leagues of financial collapses.

Growth: Where Banks Get Their Profits

For the banks’ lending services, they charge a price, which we know as ‘interest’. And this ‘interest‘ is really interesting. For one thing, the loans out of which money is created are only big enough to cover the repayment of their principal value. What the creation of the loan does not do is create enough money to pay the interest that is due on the loan.

So where does money for the interest come from? From future ‘growth.’

Every bank loan is a bet on the future of the system as a whole. It’s a bet that there will be sufficient ‘growth‘ for the bank’s interest charges to be paid.

In other words, the banks are dependent on the overall growth of the financial system in order to be paid. They are unlike flesh-and-blood people in that way. Once we become adults, we stop growing — or grow horizontally, to our detriment. The same can be said for societies. There is no intrinsic reason for growth, nor is there any good policy reason. There is certainly no intrinsic or policy reason for interest. It’s just a way to provide the banks with interest, and thereby to funnel more and more money into fewer and fewer hands. It sets us each against each to make sure that we are the ones who make the extra income to pay off the interest, and somebody else is the one who gets thrown in the ditch. The mania for ‘growth‘ leads to the ongoing rampage against our natural surroundings.

This complex of consequences is onerous for the borrowers, for social relations, and for the environment, and areis among many of the reasons why interest was banned for centuries in all the monotheistic religions.10

There are ways out of these problems with our privatized money system based on interest-bearing debt: in future essays, we’ll look into the populist movement in this country. Those self-taught nineteenth century dirt farmers understood the operation and the parasitical character of the banking system far better than most people do today. Seeing its overall social function, they proposed a system which would have cut the banks out and put the control of money where it belongs: in the hands of the people.

We’ll also get into the behind-the-curtain operations of the Federal Reserve (hiding the essentially political decisions that they make behind a fog of jargon), and we’ll take up the Universal Basic Income, as promised last month.


1. Clough, Arthur Hugh, “The New Decalogue,” in Katherine Washburn and John Major, Editors, Clifton Fadiman, General Editor, “World Poetry: An Anthology of Verse from Antiquity to Our Time,” Quality Paperback Book Club, 1998, p.722. Clough’s dates are 1819 to 1861. Among other achievements, he was an assistant to Florence Nightingale.

2. From The Onion, “U.S. Economy Grinds To Halt As Nation Realizes Money Just A Symbolic, Mutually Shared Illusion,” ISSUE 46•07, Feb 16, 2010,,2912 viewed Aug. 30, 2014.

3. The story in this section of the text owes much to David Graeber’s encyclopedic and incisive “Debt: The First 5,000 Years,” Melville House Publishing, 2012.

4. In 2012, 37 percent of what each of us paid in income taxes was devoted to the cost of wars past, present and future, for a total of $1.1 trillion. Friends Committee on National Legislation, “Where Do Our Income Tax Dollars Go?” viewed Oct 29, 2014.

5. Thomas Hobbes, “The Leviathan,” or the matter, forme, and power of a commonwealth, ecclesiasticall and civill, 1651. There are many modern editions, for example, Hobbes: Leviathan: Revised Student Edition, Richard Tuck (volume editor), Cambridge University Press, 1993.

6. Polanyi, Karl, “The Great Transformation: The Political and Economic Origins of Our Time,” 1944, Beacon Press ed., 1957, pp. 164-5.

7. Some people look to an ostensible earlier time when money was something “real” or when paper money was “backed” by something, let’s say gold. But when you get right down to it, those things aren’t any more real than the 0s and 1s in the computer code for your bank account (and our underlying promises to pay our debts). Their “value” also depends on a shared belief system, the belief that if you take your gold or cowry shells somewhere, you’ll be able to exchange them for things that you really need for life: like food or a warm jacket.

8. And let’s not forget the $1.2 trillion in student debt enslaving the entire next generation before they have a chance to start. viewed Dec. 1, 2014.

9. Stiglitz, Joseph, The price of inequality: how today’s divided society endangers our future. New York: W.W. Norton & Company, 2012.

10. This includes Judaism, at least when the loan is to a fellow Jew. See the “Jewish Encyclopedia” article on Usury. viewed, Dec 8, 2014.

Back to Top of Story