OUR DEBT-BASED MONEY SYSTEM
Earl of Caithness speaks
This speech was delivered by the
Earl of Caithness in the House of Lords,
Wednesday, 5 March, 1997. It is reprinted in full from
Hansard, Vol. 578, No. 68, columns
The Earl of Caithness: My Lords, I too wish to thank
my noble friend Lord Prior for initiating this debate. It
comes at a most interesting time in the run-up to the general
election and, as a result, we could not have envisaged the
parties opposite saying anything thought-provoking or
interesting about the economy. We were not disappointed.
Looking at it from a conventional viewpoint, the economy is
in good shape and the Government have done better than most of
their counterparts in Europe. We have moved out of recession
and on the surface the economy is stronger and people are more
confident. There is much that I could say about that. I think
the Government have done a very good job.
However, it is also a good time to stand back, to
reassess whether our economy is soundly based. I would
contest that it is not, not for the reason to which the noble
Lord, Lord Eatwell, alluded, which is that it is the
Government's fault, but
our whole monetary system is
utterly dishonest, as it is debt-based. "Dishonest" is a
strong word, but a system which by its very actions causes the
value of money to decrease is dishonest and has within it its
own seeds of destruction. We did not vote for it. It grew upon
us gradually but markedly since 1971 when the commodity-based
system was abandoned.
Let us look at what has happened since then.
supply in 1971 was just under £31 billion. At the end of the
third quarter of last year, it was about £665 billion. In 25
years it has grown by a staggering 2,145 per cent. Where
has the money come from? Interestingly, the Government have
only minted a further £20 billion in that time. It is the
banks, the building societies and our commercial lenders who
have created the balance of £614 billion.
If this rate of
growth is projected over the next 25 years, the money supply
in 2022 will be over £14,000 billion.
All that new money bears interest paid either by us as
individuals, by companies or by the Government.
Government pay over £30 billion annually in interest charges
-- coincidentally about the same as the total money supply
only 25 years ago.
Governments since then have abdicated their
responsibility for producing new money and controlling the
money supply so that now they are marginalised.
government notes and coins accounted for 14 per cent of the
money supply. Now it is only about 3.5 per cent. "So what?",
noble Lords might ask.
The problem is that it is commercial lending that has
boosted the money supply, thus increasing debt and, as sure as
night follows day, inflation follows growth in money supply of
The only reason that debasement has not flowed into
price figures in the last four years is that the high interest
rates in the recession gutted businesses and individuals,
leaving too many unable to pay the price levels that the
debasement requires. But the wall of money is increasing
remorselessly. The noble Lord, Lord Ezra, mentioned the
Halifax Building Society's latest surplus of about £3 billion
to £5 billion.
Since 1991, in a time of recession, it has increased by 32
per cent and most of that is in the last two years.
remember that virtually all the increase represents a rise in
the burden of debt the economy must carry.
The wall of money
has already driven the stock market to an all-time high and
some are now questioning whether it truly reflects company
performances. Recently more money has begun to be channelled
into both the residential and commercial property markets.
Here I must declare my interest as a residential surveyor in
central London who has benefited from that. Our company,
Victoria Soames, recorded a hardening of the residential
market early last year, followed by a 20 per cent rise in the
last six months. That rise is continuing, if not accelerating.
Lenders remain aggressive and, very disturbingly, the
proportion of borrowing by individuals is moving up.
When the money supply increases, as it is doing, the
previously existing money is debased accordingly. Therefore,
either wages and salaries must also increase to maintain
parity or those who earn wages and salaries will find that
they no longer participate in the national economy to the same
extent as they did previously. This exacerbates the growing
fragmentation of our society, which cannot go on for ever. I
am not advocating high wages but I am advocating less
debasement and better control of the money supply.
When wage inflation does happen, it will feed through to
all parts of the economy. The result, sadly, will be that the
Government have to use the only tool they know -- an increase
in interest rates. That has happened fairly recently, but it
is not the first time that is has happened. We saw it in the
1970s and again in the 1980s. It is a consequence of our
debt-based monetary system that it leads inevitably to
business and economic cycles.
Conventional wisdom tells us that in order to create new
jobs and boost the economy, interest rates have to be reduced.
That has happened. People are encouraged to borrow to invest
and spend. That has happened. As the continuing flow of new
money finds its way into the economy, inflation will follow
and up will go interest charges again to reduce the level of
borrowing. In order to pay the increasing levels of interest,
borrowers will once more have to reduce expenditure in other
areas of economic activity. The cycle will continue, but the
next time, as before, we will all start deeper in debt and
with a burden harder to carry.
Personal debt has already
increased by nearly 3,000 per cent since 1971. How much more
can we take? I hope, for the sake of our economy, without
which we cannot finance what we want to see -- a good health
service and a good social security system among other things
-- we will question this conventional wisdom.
We all want our businesses to succeed, but
existing system the irony is that the better our banks,
building societies and lending institutions do, the more debt
The noble Lord, Lord Kingsdown, said that
there is little that can be done about debt. No, I do not
believe that. There is a different way: it is an equity-based
system and one in which those businesses can play a
The next government must grasp the
nettle, accept their responsibility for controlling the money
supply and change from our debt-based monetary system. My
Lords, will they? If they do not, our monetary system will
break us and the sorry legacy we are already leaving our
children will be a disaster.
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PROSPERITY and is essential reading for
The Grip of Death: A study
of modern money, debt slavery and destructive economics by
Michael Rowbotham, [Jon Carpenter Publishing, 1998] and
Goodbye America! Globalisation, debt and the dollar
empire by Michael Rowbotham, [Jon Carpenter Publishing,
2000] and Creating New Money: A monetary reform for the
information age by Joseph Huber and James Robertson [New
Economics Foundation, 2000] are all available from