John Tomlinson

A Challenge to Banking

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In this book, I wish to examine in detail one of the basic presuppositions upon which most of us have based our lives. It is one of the corner stones of Western economic thought. From Ricardo to Marx, Keynes to Mises, Hayek and Friedman to Galbraith, none of the economic thinkers who are respected today have questioned the validity of the money-lending function of the banking system. It is a "given". We are led to believe that the purpose of the banking system is to lend money, that governments and industry need bank lending to expand and create growth. These ideas should be challenged and so, too, should the foundations upon which they are built.

Bankers, like most of us, have simply found themselves within an economic and financial system which includes the practice of money-lending. Within that system they have set out to do the best job they can. Most have behaved responsibly. Yet few, if any, have examined the validity of the very function which each has so effectively performed.

Responsible bankers are not the only people busily engaged in a critical reappraisal of both the world banking system and the Western monetary system. The two systems are under threat. The former due to the current saturation of the borrowing market and the potential for massive debt default. The latter due to the potential for hyper-inflation. These threats draw the critical scrutiny of all who are responsible for them and dependent on them. In this sense the most humble saver, the ordinary working man or woman, the head of a giant corporation, and the head of a government, each share a common cause: finding and correcting whatever faults may lie within these two systems so that the application of valid remedies can strengthen them and make them more secure.

It simply cannot be right that the solution to current economic difficulty is to lower interest rates. Interest rates are lowered to entice people into debt. Nor can it be right for economists to agree that the money supply is not growing fast enough. The money supply grows by creating new debts. The inference of these two statements is that not enough people are in debt or that those who are in debt are not deep enough in debt. It is absurd to suggest that these are the means to create healthier economies.

I will expose the mechanics of the money-lending activities of the banking system: how they began as a fraud; how the dishonest money produced by this fraud-based mechanism steals purchasing power from prudent savers and those on fixed incomes and transfers it to borrowers; how this fraudulent practice was legitimised and became the principal mechanism by which our money is debased: and how inflation, business and economic cycles and other apparently unrelated market phenomena flow directly from this debasing mechanism.

I will explain why attempts to control inflation have failed and why, based on current thinking, they will continue to fail.

New thinking is essential. New thinking must be based on clearer understanding. This book is my contribution to the process of clarification.

The solutions I offer are based on what I see as being possible to achieve. They are not constrained by the 'probabilities' by which much current thinking and practice would limit us. It is possible to change the existing monetary and banking system so that it no longer debases the paper money upon which we have all become so dependent. Prices can be stabilised. The business and economic cycles to which we have become accustomed are not necessary. The mass unemployment of recessions and depressions can be avoided. Sustainable economic growth can be achieved. A continuing flow of investment into sound new enterprise is within our capability. Prudence and saving can once more be honoured and rewarded rather than penalised. All of these are possible. They can and will occur within an honest monetary and banking system. That must be our goal.

I intend through this book to contribute a perspective which is not yet widely seen, to raise serious questions about the banking and monetary systems, and to offer answers to at least a few of those questions. I have tried to avoid jargon, and use the simplest of English in the interest of clarity and communication.

Steeple Barton, Oxfordshire, England - October 1993

John Tomlinson

Inflation Is Not New
"Money which continually loses value is dishonest. It acts like a thief." Here we look at how inflation causes chaos and how to measure money's dishonesty.

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