Statement of Credit of the International Independence Institute
by Robert Swann
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The Creation of Money and Credit
Credit, or money creation primarily should be the function of relatively local or regional
bodies of men, not central banks. In the future, we may call them commodity banks, credit
unions, or by some other name.
This function of money or credit creation is a crucially vital function for the economic
health of a community or region. It cannot be delegated to a central banking facility such as
the Federal Reserve System without losing the vital element of local control and power over
the lives of the people in each region. All over the world today, men and women are
struggling to regain power over their own lives, and independence cannot be achieved
without control over the institutions of credit creation as well as land and natural resources.
Yet few, if any, of the newly independent nations have control these institutions. Such control
remains in the hands of the "big ten key currency" countries. Meanwhile, the distribution of
wealth becomes increasingly concentrated in the hands of fewer and fewer people in the
wealthy nations, and the poorer countries grow poorer.
Establishing Local Credit Institutions
Although some link the creation of new credit (SDRs) in the international
monetary system with underdevelopment, according to the March, 1972 Christian
Science Monitor, "The industrial nations now receive 73% of newly created SDRs
and the poor nations only 27%." It is unlikely this will change. In short, the rich get richer and
the poor get poorer.
Not only are poor nations left out of the money creation process, but within the larger
countries, poorer regions, which are primarily rural, are also left out of this process. Wealth
tends to centralize in the urban aggregations where the commercial and central banks are
located. Moreover, the commercial banks tend to bestow their privilege of money creation (a
public trust) upon industries, particularly the larger ones in position to guarantee or
underwrite large money issues (money is issued as loans by the commercial banks). As a
result, the centralizing forces are intensified, and money concentrates more and more in fewer
and fewer hands. Finally, when commercial banks act as the issuing source, they make no
distinctions between short-term loans for productive purposes, which are constructive and
noninflating, and long-term loans for capital investment, which are socially destructive, such
as industries that create pollution as a byproduct.
One of the purposes of the International Independence Institute is to assist in
establishing models of local credit institutions. To accomplish this task, one of the important
elements is to create credit infrastructures that help to build confidence and competence
among ordinary people in the handling of money, making loans, and allocating resources.
Limitations of Credit Unions
It might appear that credit unions are an ideal way to promote such public credit
institutions, and in some ways this is true. Unfortunately, however, there are also at least two
major problems with credit unions that limit their usefulness as training institutions for the
creation of community-based banking facilities. One is they are entirely dependent upon the
existing banking facilities for money creation, and have been restricted by law from entering
into commercial banking functions. Two, members tend to request loans for consumer
purposes only. Therefore, experience with decision-making with regard to production loans is
very limited.
These limitations do not imply that credit unions are not important and useful tools in
helping to develop community and self-help oriented credit systems. They certainly are and
should be encouraged in every way possible. But at the same time, credit union allocation
committees should be encouraged to emphasize and promote production loans rather than
consumer loans, as only short-term production loans should be the basis for direct money
or credit creation. Moreover, countries whose laws do not prevent credit unions
from doing so should begin experimenting with direct credit creation. This may be done
simply by offering notes they received for production loans for discounting at central banking
facilities. Credit union ideology, however, which has been "tamed" by banking laws in most
countries, is not likely to approve or promote this kind of development.
The International Independent Institute has helped to establish a separate banking
facility called Arbtrage International, which is designed to operate on an international level,
whose purpose is the establishment of community-based credit facilities that promote local
production of agricultural goods and intermediate technology. While initially operating
similar to how a local credit union would operate, there are differences. One is that the
primary credit source (provided by private investment on a rediscount basis) is mostly from
outside the community. Another is that it is only for production purposes. These community
credit units begin to form the infrastructure from which to launch genuine community-based
banking practices.
For more information, please contact the
E. F. Schumacher Society:
140 Jug End Road | Great Barrington, MA 01230 USA
Phone: 01.413.528.1737
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