Excerpt: CHAPTER 7

An Overview of Our Current “Owed” Money System

“The study of money, above all other fields . . .is one in which complexity is used to disguise truth or to evade truth, not to reveal it . . .The process by which banks create money is so simple that the mind is repelled.” (John Kenneth Galbraith)

With Mr. Galbraith's words in mind, we will try to keep this discussion as succinct and devoid of complex terms and subterfuge as possible by focusing on the two main ways money is created - or brought into circulation. The first is debt-based, “owed” money and the second is debt “free,” or “owned” money. Some people say that “Owed” money is “money of accounts” and “Owned” money is “money of exchange.” We say that the two forms of money creation reveal “the two faces of money.”

The Federal Reserve System is a central banking system and like all central banking systems, it operates as a debt-based or “owed” money creation system, and uses “money of accounts” rather than “money of exchange.” Today, some 170 plus countries manage their economies through a central banking system, all of which fall under the leadership of the Bank of International Settlements in Switzerland or BIS. It is estimated that some 90% of the global money supply is “owed” money. Note that while some central banks may call themselves “national banks,” as did the First and Second National Banks of America, they can be identified more properly as central banks because they bring money into circulation as “owed” money or debt. Therefore, keep in mind that it is the system which we address here – not the individual banks or employees of the system, nor the individual or national supporters of the system.

As William Jennings Bryan told us over 100 years ago, the manner in which our money is created is without a doubt the most important issue facing all of us today. It is as he said “the issue of 1776 over again.” Many experts agree, and many bankers are themselves looking for ways to improve the system, including Robert H. Hemphill of the Atlanta Federal Reserve Bank. In testimony before Congress Mr. Hemphill said:

We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system.... It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.

For his part, William Jennings Bryan rightly declared in his “Cross of Gold” speech “that when we have restored the money of the Constitution all other necessary reforms will be possible; but that until this is done there is no other reform that can be accomplished.”