NGO Another Way (Stichting
Bakens Verzet), 1018 AM
ECOLOGICAL, SUSTAINABLE, LOCAL INTEGRATED DEVELOPMENT PROJECTS FOR THE WORLD’S
Edition 01 :08 September, 2013.
papers by L.F. Manning published at http://www.integrateddevelopment.org.
General summary of all papers
following items have not been revised. They show the historic development of
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THE END OF
CAPITALISM: SYSTEMIC COLLAPSE
Version 2 Final
THE END OF
CAPITALISM: SYSTEMIC COLLAPSE
“An imbalance between rich and
poor is the oldest and most fatal ailment of all republics” (attributed to
“Money is not the key that
opens the gates of the market but the bolt that bars them.”
The Natural Economic Order, revised English edition, Peter Owen, London 1958, page
Capitalism based on
interest-bearing debt is drowning in its own waste.
It is drowning
because it has institutionalised usury, providing something for nothing.
Charging unearned income
Were those hands to
take a penny in the dollar from us each time we went to market, we would have
just one penny left after ninety-nine market days. That is where the world is at now. The
gatekeepers have already taken most of our pennies.
We will be unable
to buy or sell anything when the gatekeepers take our last pennies. There would
be no money left either for production or consumption. The gatekeepers would
have all the pennies and all the power that goes with them. They wouldn’t need
us then other than as their economic slaves. Most of us would join the oceans
of jobless and poor. Expendable blips on secret surveillance screens.
Debt-based money is
the hand of God and Man; one and the same.
Money has become God while Man, in the guise of gatekeeper, claims
divinity. That is why the major religions have banned usury for thousands of
years. It is why there were debt jubilees in pre-Christian times every 49 years
or so (7 “weeks” of 7 years).
Unlike money in
pre-Christian times, our present money system is itself based on debt. For
every penny of bank credit (debt and cash) there is a penny deposit somewhere.
The banks own roughly 8% of those pennies. Some say the banks’ pennies have
been stolen from us while for others they represent legitimate profit. Either
way the result is the same.
The banks are gatekeepers.
There is more. If we are in
debt to the rest of the world, the rest of the world also owns a share of our pennies
equal to that debt. It becomes yet another gatekeeper: a gatekeeper in the
international market. In
So foreign creditors are
The one to one
relationship between debt and money is not secret. Anyone can see the numbers.
They are reported every month by central banks the world over.
All bank debt is
interest-bearing. The interest is made up of the “claims” rate, the interest
paid by debtors to the bank. The difference between the “claims” rate and the
“funding” rate (the interest rate the
banks pay to their deposit holders) is the bank “spread” the banks get to keep
to provide their services to us, pay their tax, and generate their profit.
The net profit from
the spread after all the costs and deductions have been paid is “owned” by the
banks. Some of it is paid out as dividends to shareholders. The rest of the
profit it is undistributed and kept as a reserve. The banks use that extra
reserve to expand debt exponentially. A net increase in their reserve of just
0.5% of the total bank debt after tax is usually enough to expand bank lending
by more than 6% a year. That process is called leverage or “fractional reserve”
banking. Most banks usually make more than 0.5% net profit each year. To
increase their profits as much as they can, the banks usually lend as much as
they can. Last year the
The banks and
foreigners are two of the gatekeepers at the market gate. Their growing wealth
enables them to lend more and more pennies to those of us paying our penny
entry fee each time we go through the gate. The banks say they are providing a
service for their pennies but there is no special reason we should have
gatekeepers at all. We do not need to borrow pennies from banks. We have been
brainwashed into believing we must do so.
If the pennies
themselves were publicly owned as most monetary reformers say they should be,
the profit would belong to us, the public, and could be used for the public
good instead of private gain. The banks’ hands would be removed from the market
gate. We, the public, would get to keep some of our pennies and the market
would be less likely to fail for lack of money. Because the banks would not be
earning pennies on the money supply itself (the pennies themselves), the rate
of growth of debt might begin to slow.
the banks nor foreigners always have the biggest hands at the market gate. Most
of the rest of the pennies are held in domestic bank accounts where they do
nothing but gather more of our pennies in interest.
often have the biggest hands !
Whenever the total
net deposit interest the banks pay to deposit holders after tax is more than
the sum of the net bank profit and the profit paid to foreigners, the deposit
holders are collecting lots of our pennies at the market gate too.
In some countries,
Very few people
understand what happens when depositors’ hands take our pennies one by one.
Depositors are not the same group as debtors because it is always cheaper to
repay debt than hold both deposits and debt. Depositors are the “haves” and
debtors are the “have-nots”. In “occupy” terms, the “haves” are the 1%, and the
“have-nots” are the 99%. In the main, depositors hold money while debtors hold
debt. Most deposits are called “savings”. Debtors pay “funding” interest to
depositors just because they have deposits. The interest passes through the
banks’ accounts but it does not belong to the banks. It belongs to the
Few deposits in the
present banking system are used to do anything.
Most are not circulating for production and consumption in our markets. The gatekeepers’
pennies exist because of the debt the rest of us must carry to pay them. They
are not productively invested at any
point in time. Nor are they usually at risk of loss because deposits are often
insured against loss. There would be no risk of loss at all if we used a stable
money system without gatekeepers.
There is no reason
why depositors should get more of our pennies simply because they already have
some. That is usury in the biblical sense: something for nothing.
Most economists say
that deposit interest is needed to offset inflation. The author’s work shows
they have the cart before the horse. Deposit interest causes inflation because it reduces purchasing power in the
marketplace. Every penny we pay at the market gate is one more we have to
borrow if we want to keep spending in the market and maintain, let alone
improve our standard of living. We can do so only if we get more pennies from
the bank to give to the gatekeepers, to the banks and their deposit holders and
to foreign creditors. On the whole, the further we go into debt the more to
pennies we must pay them.
So there are three sets of
gatekeepers: the banks, foreign creditors, and those holding interest-bearing
A free market is one without gatekeepers. The present
multitude of gatekeepers means there is no such thing as a free market. In a
free market there would be no bank debt created at interest. No interest paid
on deposits. External accounts would be balanced.
That means eliminating inflation !
It can be done. Except for two short spells
during the Tudor period in the middle of the 16th century and during
the Napoleonic wars at the beginning of the nineteenth century, there was no
aggregate inflation in
The author calls
the growing piles of gatekeepers’ pennies “systemic inflation”. Depositors and
banks and foreigners build up their piles of pennies while the rest of us build
up our piles of debt. That might be better than having no pennies at all but it
leaves us in the worst of all worlds. The gatekeepers’ hoarded piles of pennies
(“savings”) push up prices in the marketplace because we have to increase our
prices so we can pay more and more pennies to the gatekeepers. Otherwise we go
broke or starve.
businesses and other existing assets become dearer. The more pennies the
gatekeepers have the higher the prices of those assets will be unless we can create new assets faster than the
gatekeepers’ piles of pennies grow. That is mathematically impossible to do.
The author’s work
shows the relationships between the gatekeepers and the market using an updated
version of the Fisher Equation of Exchange. The Fisher equation is very well
known. It relates the value of what we produce to the pennies we use to produce
it. The author’s “debt” model includes all the gatekeepers’ pennies. It is the
only economic model in the world that does so properly. It simply says:
Debt = (a) The
money we need to produce and exchange goods and services in our markets plus
The gatekeepers’ pennies we have
paid on deposits plus
The existing pennies the
gatekeepers lend directly to us or among themselves, called secondary debt, plus
(d) The gatekeepers’ pennies we have paid
to the banks (called “the bank residual”) plus
gatekeepers’ pennies we have paid to foreigners plus
(f) Any extra
pennies we have borrowed directly to buy the net new capital assets we have
extra pennies the banks have created for us over and above those we need to
keep the markets operating. That is
so-called “bubble debt” that has recently caused so many problems around the
All except (a) are
part of the investment sector or “the paper economy” as it is often called: (b)
calculated as the net interest on bank deposits plus the interest on (c) and (d).
The interest on (e) is also real but in the author’s work it is included
in the current account deficit so it forms part of (e).
We have to borrow
(f) from the banks because we are told to “save” part of our market incomes
instead of lending them among ourselves so we can buy the capital assets we
produce. “Saving” is itself a kind of gate keeping unless it is used to help us
pay for new capital goods, because we have to borrow more pennies from the
banks to offset the “Saving”.
“Bubble debt” (g) is debt over and above what the
financial system needs to remain stable, like the “sub-prime” mortgages and so
called “quantitative easing” in recent years.
The total debt and
most of the other amounts in (a) to (f) are known or can be estimated so the
author’s debt model can be solved at any time for (g). It can also be solved
for any chosen combination of debt and variables (a) to (f). That allows the
effects of monetary reform and other policy changes to be accurately
The author calls
the variable (b) systemic inflation because it has to be built into the price of
everything we produce and trade in the marketplace. Systemic inflation in
There are only a few options
to combat economic collapse once all the increase in GDP has all been committed
to the gatekeepers.
(i) Change the financial system to avoid usury or
(ii) Accept rapid impoverishment as the gatekeepers destroy our markets
by taking our last pennies or
(iii) Redistribute wealth and money through more appropriate tax systems
to force the gatekeepers to give us some of our pennies back or
(iv) Reset the debt clock through some form of
debt jubilee, but leave the gatekeepers with some or all of their pennies or
(v) Destroy the gatekeepers and redistribute their pennies through
revolution and war or
(vi) Destroy the planet to provide an excuse to
produce more pennies or
(vii) Some combination of the above.
Most of the options are
unpleasant. Some are immoral.
Our present course is a
combination of (ii) and (vi), through
our worship of the “growth imperative” god.
As more and more physical and natural resources are “used up” in the pursuit
of more GDP, the world becomes more polluted and more unequal while climate
change affects our living environment.
Option (ii) is
possible, but it doesn’t fix the problem because systemic inflation will
continue to rise and the condition of the “have-nots”, the 99%, will continue
to worsen. Option (iii) buys a little time but is not a permanent solution on
its own. The same is true of option (iv) : everyone going to market can borrow
more pennies but the gatekeepers keep all those they already have and are then
able to accumulate even more from us at a faster rate. Option (v) could well be
about to happen. It has often happened in the past but it is a poor option
because (aside from the catastrophic human and environmental cost) we cannot be
sure whether what follows will be better or worse than what went before. That
really leaves options (i) and (vii). If option (vii)
is used, option (i) will have to be a substantial
part of it because none of the other options will work on its own. Combinations
without (i) are doomed to fail.
Option (i) itself faces formidable obstacles because money power is
deeply entrenched. The military and surveillance authority of the State
supports that power in most countries. The broad policy in the
The strategy for
option (i) is to be prepared. That means having
monetary reform implementation plans in place and a cadre of experts and others
willing and able to implement those plans at short notice. Those experts and
their allies need to be close to the action when it happens and be backed by
large civil support groups and even wider public awareness of what is at stake.
A good example of this is the proportional representation movement in
Karl Marx may soon
be proved right though for different reasons than he imagined. Capitalism in
its present form will end because the inherently unstable financial system it
uses will itself collapse. The role class plays in the struggle to come is
unknown but it is doubtful Marx saw the odds approaching 99% against 1%.
For more papers by L.F. Manning on monetary reform see http://www.integrateddevelopment.org.
is not the key that opens the gates of the market but the bolt that bars
Silvio, The Natural Economic Order, revised English
edition, Peter Owen,
This work is
licensed under a Creative
Commons Attribution-Non-commercial-Share Alike 3.0 Licence.