Page 16 - Michael 2024 March

Unpayable debts bear bad fruit

Debt-free financing through Economic Democracy

by Louis Even other than that received through taxation and loans,
did not create it.
Materially speaking, which is the richest coun-
try in the world? Neither was this $1 billion made by farmers,
Everyone would agree the world’s most pros- workers or industrialists. These people make agri-
cultural and industrial products; they do not make
perous country is the United States of America. The money.
United States has the best equipment, the greatest
production, and can offer other nations the greatest The extra $1 billion came into being because pri-
range of products. It is the country most capable of vate or public borrowers were granted loans that to-
expanding its productive capacity. talled $1 billion. These loans were created by simple
What country has the largest national debt? bankbook entries, that is, figures were entered by
the banker to the credit of a borrower who came to
The United States has this distinction with a na- the bank to obtain money (and not because a de-
tional debt exceeding $34 trillion (in 2024). positor brought money to the bank).
The game is rigged More precisely, one would have to say that loans
Is this not contradictory? How can the rich- would have totalled more than $1 billion over the
est country be the country with the largest public year, since loan repayments were also made during
debt? this period.
In all logic, this is contradictory. But with the Repayments remove money out of circulation.
present financial system, it is inevitable. The more Loans add money to circulation. The total amount of
a country increases its productive capacity and be- money in circulation increased by $1 billion because
comes richer, the more indebted it becomes finan- the total value of loans exceeded the total value of
cially. repayments by $1 billion.
The same applies to Canada. Compare the coun- Loans are debts that must be paid back. Repay-
try’s present wealth to what it was 300, 200, 100, ments cancel debts. If loans exceeded repayments
50 or 25 year ago. You will see that although real by $1 billion, the debts incurred exceeded the debts
wealth has continuously increased over these years, paid back by the same amount.
the national debt has also been increasing. This is This is how any increase in money creates an
true for provincial and municipal debts as well. increase in debt.
How can this be? Does the total of repayments sometimes ex-
In a system in which money is only issued in the ceed the total of loans?
form of a debt, there can be no increase in money Yes, for a short period of time. This occurs when
unless it is by increasing the amount of debt. The banks, taken as a whole, refuse to lend money while
greater the volume of production, the more money insisting they be paid back. In this case, the money
is needed not only to produce but to consume prod- in circulation decreases, and soon a recession re-
ucts. sults. There is then less money to make purchases
Loans and deposits and pay wages. An economic crisis begins.
What do you mean by “more money is needed”? But the entire debt can never disappear. All
“More money” refers to the volume of money in debts cannot be paid back even if all the money that
circulation. was put into circulation through loans were to be
used. The reason is that the borrower goes into debt
If there was $5 billion in circulation last year, for an amount greater than the amount borrowed.
and this year there is $6 billion, $1 billion must have This is due to the charging of interest on loans.
been added. The $1 billion that did not exist last year
Since money enters circulation through loans,
but that now exists is $1 billion of new money. and since money disappears through repayments
This $1 billion did not materialize on its own. that are larger than the loans, this means that, as
Money is not born spontaneously, nor does it fall a whole, more money must be paid back than the
out of a tree or fall from the sky as does rain or snow. money found in circulation. This is not mathemat-
The Government, which asserts it has no money ically possible.

16 MICHAEL March/April 2024 www.michaeljournal.org