Today, more than 95% of the money in circulation is created by commercial banks in the form of loans that must be repaid with interest, which creates unpayable debts for governments, businesses, and individuals. What MICHAEL proposes is that an independent body create, in the name of society, interest-free money issued according to the needs of the population.
On what would this money of Economic Democracy be based?
On the same basis as today: on production — on the things that money is used to buy. Any money not based on production, actual or potential, would be pure and simple inflation.
But isn't today's money based on gold?
The gold basis is a myth. What relationship can there be between gold — which must be extracted from the depths of the earth — and the things that feed, clothe, house, heal, rest, entertain, and educate?
Place all the gold in the world in the midst of nothing — at the North Pole, for example. Be the owner of all that gold, surrounded by nothing. You will simply starve to death.
Even when banks held a certain quantity of gold in their vaults — for example, 25 cents in gold for every paper dollar — gold, no more than paper, had monetary value except in relation to the production available. Destroy all the output of farms and factories while keeping the gold. What will you live on?
But destroy all the gold and preserve the farms and factories: you will live just as easily as before — provided you are not foolish enough to wait for gold before taking a bite of bread.
Money is a convention. The monetary instrument can be made of anything, provided everyone accepts it in exchange for goods or services.
But we are so accustomed to money based on gold that no one would accept money no longer backed by gold?
Really? In 1914, when the First World War broke out, English depositors rushed to their banks to withdraw their money in "gold sovereigns." An obvious impossibility, since gold represented only a fraction of the money in circulation.
The banks closed their doors. The government had the Bank of England print paper pounds sterling and declared them legal tender on the same footing as gold. The banks reopened. The English had paper, and life went on.
In Canada, on April 30, 1940, the government decided to abolish the gold basis for all the country's money. Gold was transferred to foreign exchange control — that is, to serve as a commodity for exchange between countries.
Louis Even
Note: Beginning with the First World War in 1914, all countries abandoned the gold standard, which had never truly functioned, since the need for money far exceeded the quantity of gold available. After the Bretton Woods Agreements in 1944, only the U.S. dollar was convertible into gold, and only central banks of other countries — not individuals — could obtain gold in exchange for U.S. dollars. Obviously, demand soon exceeded the available gold supply, which led U.S. President Richard Nixon to end this arrangement in 1971.