Hey Honey, they shrunk the money!

Looking at the bright new shiny, and shrunken, coins I wonder if any one else notices how much they have devalued? The new copper 10c piece looks remarkably like the 1c coin we used to have – except it now has an additional zero on it. Is that how much value the money has lost, and why?


Money is issued by commercial banks at little cost to themselves and then lent to people and businesses against interest – the money creation process is essentially an entry into an accounting ledger. Because money is loaned into existence against interest, and interest is not created ahead of time, there is always scarcity of money. Thus, in order to have enough money to be able to pay the interest required, more loans need to be issued. A larger mass of money leads to a gradual loss of value of each monetary unit. Hence the house that cost $40,000 when 1 cent pieces were common now costs $400,000.

I hear the cry: "It's too complicated – how are we to understand these serious and complex economic issues, and if we did what could we do about them?" We quickly pass on the responsibility to others who know better – after all they work in our best interests, no? A paragraph in David C. Korten's latest book "From Empire to Earth Community," answered this very succinctly for me.

"These financial games [money creation, interest bearing loans, manipulated interest rates, financial speculation, and more] contribute nothing of value to the larger society. They do, however, significantly increase the buying power of the ruling elites and their claims on the real wealth of society relative to the claims of those persons who contribute to the creation of that wealth by producing real goods and providing real services. They are the most successful of financial cons because the mechanisms are invisible and the marks—the object of the con—rarely realise they have been conned. Even if they were to recognise they have been conned, there is nothing they can do about it because the con is both legal and culturally accepted."

As shocking as that can sound, we see it all around us. Many of the productive people in our community, are living on incomes similar to what they lived on 10 years ago when our money bought much more. Now almost everyone is working longer hours, taking less holidays, or part of a two income family – just to maintain the same standard of living, if that.

The picture is the same in most countries across the planet, and in a globalised world we are not isolated from the world economy.

"Today the world is run by three of the most secretive institutions in the world: The International Monetary Fund, the World Bank, and the World Trade Organization, all three of which, in turn, are dominated by the U.S. Their decisions are made in secret. The people who head them are appointed behind closed doors. Nobody really knows anything about them, their politics, their beliefs, their intentions. Nobody elected them. Nobody said they could make decisions on our behalf." – Arundhati Roy

In order for national and international banks to justify issuing more loans, economic activity needs to expand, or more areas of life need to be monetized. But this growing economy is gobbling up natural resources and producing lower quality goods. It is leaving many people without the necessities of life. Unfortunately this grand experiment in economic growth will never self-regulate, because then the interest-based money system will fail.

As I was writing this article a friend informed me that the New Zealand national debt – to "overseas entities" – at the end of December 2005 was running at $33,000 for every man, woman, and child in the country. At 5% interest and 2.4 children per family that's $7,260 of an average family's taxes going offshore in the form of interest before we even begin to pay for governmental services!

Despite facts like this, and David C. Korten's somewhat bleak conclusion in his quote above, I am not so certain there is "nothing we can do about it." However, it will surely take considerable intention, based on first understanding how the present system operates, and then through cocreating and evolving new models which work. It is a bold task, and we can't know all the answers before we begin, but if ever there was a time to step up and be agents of the change we wish to see, it is surely now.

Coming in the next article (28 September): Models of exchange and mutual support.