Advertisement

Local Money as Solution to Capitalist Global Financial Crises

  • Felix Fuders
  • Manfred Max-Neef
Chapter
Part of the Humanism in Business Series book series (HUBUS)

Abstract

Many people are virtually convinced that money is created by the Central Bank. But this is only true for a small amount of the total money supply in the so-called fractional reserve banking system. Most of our money is created by customers’ banks by lending. To understand the problems inherent in our world financial system it is necessary to briefly explain how money creation works. If, for example, someone who possesses 100 € puts this money in a bank as a deposit, “First Bank,” then the bank will lend this money to its customers, holding back just a fraction of the original amount as reserve. Banks cannot lend all of their obligations since they have to hold some cash because there are always customers who want to withdraw their money. Let us suppose the First Bank decides to hold a reverse ratio of 10 percent. It will lend 90 € to one of its customers, while the 100 € are still disposable in its cash account. The borrower of the 90 € will spend the money somewhere; maybe he or she will buy a new cell phone. The vendor of the cell phone takes the money and puts it in the cash account of his or her bank: the “Second Bank.” The original amount of the 100 € has increased to 190 €. The Second Bank will do as bank A did: it will lend the money to its clients holding back just a small reserve, making the money supply grow further (see Figure 10.1). This well-known mechanism of money creation by fractional reserve banking is called money multiplier (e.g., Mankiw 1998, 600ff.; Larroulet 2003, 418ff.).

Keywords

Interest Rate Financial System Money Supply European Central Bank Equity Capital 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Bibliography

  1. Aizenman, Joshua, & Pasricha, Gurnain Kaur (2013). “Net Fiscal Stimulus during the Great Recession.” Review of Development Economics, 17(3): 397–413.CrossRefGoogle Scholar
  2. Aristotle, “Politics, 1st Book.” Complete Works of Aristotle. Princeton: Princeton University Press.Google Scholar
  3. Azkarraga, Joseba, Max-Neef, Manfred, Fuders, Felix, & Larraitz, Altuna (2011). La Evolución Sostenible II — Apuntes para una salida razonable, 117 páginas, Lanki (Mondragón Unibertsitatea), Eskoriatza.Google Scholar
  4. BCCh — Banco Central de Chile (2010a). Boletín Mensual, February 2010, Santiago de Chile.Google Scholar
  5. BCCh — Banco Central de Chile (2010b). Boletín Mensual, March 2010, Santiago de Chile.Google Scholar
  6. BCCh — Banco Central de Chile (2010c). Informe Política Monetaria (IPoM), March 2010, Santiago de Chile.Google Scholar
  7. BCCh — Banco Central de Chile (2010d). Informe Política Monetaria (IPoM), June 2010, Santiago de Chile.Google Scholar
  8. BCCh — Banco Central de Chile (2011). Boletín Mensual, September 2011, Santiago de Chile.Google Scholar
  9. BCCh — Banco Central de Chile (2012a). Deuda externa de Chile 2011, Santiago de Chile.Google Scholar
  10. BCCh — Banco Central de Chile (2012b). Informe Política Monetaria (IPoM), March 2012, Santiago de Chile.Google Scholar
  11. BCCh — Banco Central de Chile (2013). Informe Política Monetaria (IPoM), September 2013, Santiago de Chile.Google Scholar
  12. Beattie, Alan (2010). “Zoellick Seeks Gold Standard Debate.” Financial Times, July 11.Google Scholar
  13. Berger, Wolfgang (2009). “Die Finanzmarktkrise — Ergebnis einer Fehlkonstruktion, die wir korrigieren können.” Hintergrund, 1: 13–16.Google Scholar
  14. Bichlmaier, Simon (2010). “Umlaufsicherung vs. Niedrig-Zins-Politik und Inflationsstrategie der Notenbanken.” Humane Wirtschaft, 2: 6.Google Scholar
  15. Binswanger, Hans Christoph (1985). Geld und Magie — Deutung und Kritik der modernen Wirtschaft anhand Goethes Faust, Edition Weitbrecht Stuttgart.Google Scholar
  16. Blech, Jörg (2005). Die Krankheitserfinder — Wie wir zu Patienten gemacht werden, Fischer, Frankfurt (Main).Google Scholar
  17. Blüchel, Kurt (2003). Heilen verboten — töten erlaubt. Die organisierte Kriminalität im Gesundheitswesen, Goldmann, München.Google Scholar
  18. Buiter, Willem H. (2005). “Overcoming the Zero Bound: Gesell vs. Eisler — Discussion of Mitsuhiro Fukao’s ‘The Effects of Gesell (Currency) Taxes in Promoting Japan’s Economic Recovery.” International Economics and Economic Policy, 2(2–3): 189–200.CrossRefGoogle Scholar
  19. Buiter, Willem H. (2009). “Negative Interest Rates: Three Ways to Overcome the Zero Lower Bound.” Paper presented at Center for Financial Studies at the Goethe University, Frankfurt on May 6, 2009.CrossRefGoogle Scholar
  20. Buiter, Willem H., & Panigirtzoglou, Nikolaos (1999). “Liquidity Traps — Gesell’s Solution,” in Bank of England (ed.), Working Paper, May 31.Google Scholar
  21. Buiter, Willem H., & Panigirtzoglou, Nikolaos (2003). “Overcoming the Zero Bound on Nominal Interest Rates with Negative Interest on Currency — Gesell’s Solution.” The Economic Journal, 113(490): 723–746.CrossRefGoogle Scholar
  22. Coleman, Vernon (2003). “How to Stop your Doctor Killing You.” European Medical Journal, Barnstaple/Devon.Google Scholar
  23. Creutz, Helmut (1993). Das Geldsyndrom. Wege zu einer krisenfreien Marktwirtschaft, Wirtschaftsverlag Langen Müller/Herbig, Munich.Google Scholar
  24. Cuadrado Roura, Juan R. et al. (2006). Política Económica, 3rd ed. Madrid: McGraw-Hifi.Google Scholar
  25. Daly, Herman E., & Farley, Joshua (2004). Ecological Economics — Principles and Applications. Washington-Covelo-London: Island Press.Google Scholar
  26. ECLAC (2010). Terremoto en Chile — Una primera mirada al 10 de marzo 2010, Santiago de Chile.Google Scholar
  27. Engelbrecht, Torsten, & Köhnlein, Claus (2006). Virus-Wahn: Vogelgrippe (H5N1), SARS, BSE, Hepatitis C, AIDS — Wie die Medizin-Industrie ständig Seuchen erfindet und auf Kosten der Allgemeinheit Milliarden-Profite macht, 3rd ed. Lahnstein: emu-Verlag.Google Scholar
  28. Federal Reserve (2006). PressR. Available at www.federalreserve.gov/Releases/h6/discm3.htm.
  29. Fernández Díaz, Andrés et al. (2006). Política Económica, 4th ed. Madrid: McGraw-Hill.Google Scholar
  30. Fierro, Pamela E. (2011). “PIB de Chile llega a los US$ 200 mil millones en 2010 y supera en tamaflo a Israel y Pakistán.” La tercera, March 19: 58.Google Scholar
  31. Fisher, Irving [1963] (1922). The Purchasing Power of Money — Its Determination and Relation to Credit Interest and Crisis, 2nd ed. New York: Kelley, 1963 (reproduction of 2nd ed. from 1922).Google Scholar
  32. Fisher, Irving (1932). Booms and Depressions. New York: Adelphi.Google Scholar
  33. Fisher, Irving (1933a). Stamp Scrip. New York: Adelphi.Google Scholar
  34. Fisher, Irving (1933b). “The Debt-Deflation Theory of Great Depressions.” Econometrica, 1(4): 337ff.CrossRefGoogle Scholar
  35. Fisher, Irving (1935). 100% Money; Designed to Keep Checking Banks 100% Liquid, to Prevent Inflation and Deflation, Largely to Cure or Prevent Depressions, and to Wipe Out Much of the National Debt, Adelphi, New Haven 1945. (Page numbers cited in the text refer to the German version of the book: Gauke, Kiel 2007).Google Scholar
  36. Fisher, Irving (1936). “100% Money and the Public Debt.” Economic Forum, April–June: 406–420.Google Scholar
  37. Fisher, Irving (1937). Feste Währung — Zur Entwicklungsgeschichte der Idee, O. Lautenbach, Uchtdorf — Weimar — Leipzig.Google Scholar
  38. Fisher, Irving (1947). Feste Währung — Illusion und Wirklichkeit, Freiheit-Verlag Heidelberg.Google Scholar
  39. Frühauf, Markus (2009). Die Verstaatlichung des Anleihemarktes, F.A.Z. v. 02.04.2009, p. 9Google Scholar
  40. Fuders, Felix (2009). “Die natürliche Wirtschaftsordnung als Option nach dem Zusammenbruch.” Aufklärung & Kritik, 2: 128–147.Google Scholar
  41. Fuders, Felix (2010a). “Alternative Concepts for a Global Financial System — An Answer to the Present World Financial Crisis.” Revista de Estudios Internacionales, 166: 45–56.Google Scholar
  42. Fuders, Felix (2010b). “Warum der Zins auch moralisch nicht zu rechtfertigen ist.” Humane Wirtschaft, 2: 26–29.Google Scholar
  43. Fuders, Felix (2011). “Wie Zerstörung von Sachkapital dem Finanzsystem in die Hände spielt.” Humane Wirtschaft, 2: 34–38.Google Scholar
  44. Fuders, Felix, & Patricio Belloy (2013). “Terremoto del 27.02.2010 en Chile — Cómo el sector financiero se beneficia de la destrucción de capital real.” IADE-Realidad Económica, 3: 61–75.Google Scholar
  45. Galbraith, Kenneth (1997). The Great Crash 1929, 7th ed. New York: Mariner Books.Google Scholar
  46. Gesell, Silvio (1949). Die natürliche Wirtschaftsordnung, 9th ed., Rudolf Zitzmann Verlag, Lauf. (Translation into English by Philip Pye (1958). The Natural Economic Order, London).Google Scholar
  47. Hamer, Eberhard (2004). “Der Welt-Geldbetrug.” Zeit-Fragen, 45: 1.Google Scholar
  48. International Monetary Fund (2006). World Economic Outlook — Financial Systems and Economic Cycles, Washington.Google Scholar
  49. International Monetary Fund (2012). World Economic Outlook, Washington.Google Scholar
  50. Kaiser, Stefan (2012). No Limits ECB President Draghi Reaches for the Bazooka, in Spiegel-Online, September 7.Google Scholar
  51. Kaiser, Stefan, & Teevs, Christian (2011). “Währungsspekulation — Schweiz provoziert die Franken-Zocker.” Spiegel-Online, September 6.Google Scholar
  52. Kennedy, Margit (1990). Geld ohne Zinsen und Inflation — Ein Tauschmittel, das jedem dient, Permakultur-Verlag, Steyerberg.Google Scholar
  53. Kennedy, Margit (2011). Occupy Money — Damit wir zukünftig alle die Gewinner sind, J. Kamphausen, Bielefeld.Google Scholar
  54. Kennedy, Margrit, Lietaer, Bernard, & Rogers, John (2012) People Money — The Promise of Regional Currencies. Axminster: Triarchy Press.Google Scholar
  55. Keynes, John Maynard (1936). General Theory of Employment, Interest and Money. New York: Harcourt.Google Scholar
  56. Keynes, John Maynard (1941). “Proposals for an International Currency Union,” in Donald Moggridge (ed.), The Collected Writings of John Maynard Keynes, Volume XXV, Activities 1940–1944, 1980. Cambridge: Cambridge University Press, pp. 42–66.Google Scholar
  57. Kremer, Jürgen (2009). “Eine andere unsichtbare Hand des Marktes.” Humane Wirtschaft, 1: 2–12.Google Scholar
  58. Krugman, Paul (2009). Die neue Weltwirtschaftskrise, 2nd ed. Frankfurt (Main): Campus Verlag.Google Scholar
  59. Lanka, Stefan, Niemitz, Hans-Ulrich, Widmer, Veronika, & Krafeld, Karl (2006). Die Vogelgrippe — Der Krieg der USA gegen die Menschheit. Stuttgart: Klein-Klein-Verlag.Google Scholar
  60. Larroulet, Cristián (2003). Economía, 2nd ed. Santiago: McGrw-Hill Interamericana.Google Scholar
  61. Leitner, Michael (2000). Mythos HIV — Eine Kritische Analyse der AIDS-Hysterie, Videel, Nieb üll.Google Scholar
  62. Lietaer, Bernard, Arnsperger, Christian, Goerner, Sally, & Brunnhuber, Stefan (2012). Money and Sustainability: The Missing Link — A Report from the Club of Rome — EU Chapter to the Finance Watch and the World Business Academy. Axminster: Triarchy Press.Google Scholar
  63. Locke, John (1661). “Some Considerations of the Consequences of the Lowering of Interest and the Raising the Value of Money: In a Letter sent to a Member of Parliament, in the year 1691,” in C. and J. Rivington et al. (eds), The Works of John Locke, 9 Volumes, Vol. 4, 12th ed. London: C. Baldwin Printer, 1824, pp. 1–116.Google Scholar
  64. Mankiw, Gregory (1998). Principles of Economics. Fort Worth: Harcourt Brace.Google Scholar
  65. Mankiw, Gregory (2009). “It May Be Time for the Fed to Go Negative.” New York Times, April 19: BU7.Google Scholar
  66. Marx, Karl (1911). Das Kapital. Kritik der politischen Ökonomie, Bd. III, 3rd ed. Hamburg: Meissner.Google Scholar
  67. Max-Neef, Manfred (1986). La economía descalza — señales desde el mundo invisible, Editorial Nordan, Stockholm — Buenos Aires, Montevideo.Google Scholar
  68. Max-Neef, Manfred (1991). Human Scale Development- Conception, Application and Further Reflections. New York, London: Apex.Google Scholar
  69. Max-Neef, Manfred (2007). La dimensión perdida — La deshumanización del gigantismo, Icaria editorial, Barcelona.Google Scholar
  70. Max-Neef, Manfred (2010). “The World on a Collision Course and the Need for a New Economy.” Ambio, 39: 200–210.CrossRefGoogle Scholar
  71. McTaggart, Lynne (2005). What Doctors Don’t Tell You: The Truth About the Dangers of Modern Medicine, 2nd ed. London: Thorsons.Google Scholar
  72. Müller, Dirk (2009). Crashkurs — Weltwirtschaftskrise oder Jahrhundertchance, Droemer, Munich.Google Scholar
  73. OECD (2008). Economic Outlook, Paris, 2(84).Google Scholar
  74. OECD (2012). “National Accounts at a Glance: National Accounts at a Glance 2011.” OECD National Accounts Statistics (database), Paris.Google Scholar
  75. Onken, Werner (1997). Modellversuche mit sozialpflichtigem Boden und Geld. Fachverlag für Sozialö konomie, Lütjenburg.Google Scholar
  76. Ottacher, Gebhard (2007). Der Welt ein Zeichen geben — Das Freigeldexperiment von Wörgl 1932/1933, Gauke, Kiel.Google Scholar
  77. Perkins, John (2004). Confessions of an Economic Hit Man. San Francisco: Berret-Koehler.Google Scholar
  78. Pittman, Mark, & Ivey, Bob (2009). “Financial Rescue Nears GDP as Pledges Top $12.8 Trillion.” Bloomberg-Online, March 31.Google Scholar
  79. Pitzke, Marc (2010). “Amerika schlittert in die Schulden-Katastrophe — Haushaltsmisere im Vergleich.” Spiegel-Online, May 11.Google Scholar
  80. Reiermann, Christian (2012). “‘Dangerous Territory’ — Concerns Mount That ECB Bond-Buying Program Is Illegal.” Spiegel-Online, October 2.Google Scholar
  81. Rindebro, Ulric (2010). “BancoEstado prevé crecimiento de 10% en crédito pyme, pese a terremoto y competencia.” Business News Americas, July 22.Google Scholar
  82. Rösl, Gerhard (2005). “Regionalwährungen in Deutschland.” Wirtschaftsdienst, 85(3): 182–190.CrossRefGoogle Scholar
  83. Rösl, Gerhard (2006). “Regionalwährungen in Deutschland — Lokale Konkurrenz für den Euro?” Deutsche Bundesbank (ed.), Diskussionspapier, Reihe 1, No. 43/2006.Google Scholar
  84. Rothbard, Murray N. (2000). America’s Great Depression, 5th ed. Auburn, Alabama: The Ludwig von Mises Institute.Google Scholar
  85. Schachtschneider, Karl Albrecht (1999). “Armes Europa — armes Deutschland: Wird Europa eine Oligarchie der Unternehmens — und Parteiführer? -Gedanken zur Grundrechtsproblematik der EU.” Zeit-Fragen, 62, 1.Google Scholar
  86. Schäfer, Ulrich (2009). Der Crash des Kapitalismus. New York; Frankfurt: CAMPUS Verlag.Google Scholar
  87. Schumpeter, Joseph A. (1976). Capitalism, Socialism and Democracy, 5th ed. London: George Allen & Unwin.Google Scholar
  88. Seibel, Karsten, & Stocker, Frank (2009). “Chiemgauer statt Euro — Der Siegeszug alternativer Währungen.” Welt-Online, September 3.Google Scholar
  89. Shiller, Robert J. (2008). Die Subprime Lösung: Wie wir in die Finanzkrise hineingeraten sind — und was wir jetzt tun sollten, Börsenmedien AG, Kulmbach.Google Scholar
  90. Soddy, Frederick (1934). The Role of Money. London: Routledge.Google Scholar
  91. Stalk, Goerge et al. (2004). Harvard Business Review — estrategias de crecimiento, Deusto, Buenos Aires.Google Scholar
  92. Steltzner, Holger (2009). “Auf dem Londoner Gipfel.” F.A.Z., April 2: 1.Google Scholar
  93. Suhr, Dieter (1988). Alterndes Geld — Das Konzept Rudolf Steiners aus geldtheoretischer Sicht. Novalis Verlag, Schaffhausen.Google Scholar
  94. Suhr, Dieter, & Gottschalk, Hugo (1986). Optimale Liquidität — eine liquiditätstheoretische Analyse und ein kreditwirtschaftliches Wettbewerbskonzept. Knapp, Frankfurt (Main).Google Scholar
  95. Teichmann, Ulrich (1983). Wirtschaftspolitik, 2nd ed. Vahlen, Munich.Google Scholar
  96. Trimborn, Marion (2010). Was den Markt bewegt — Das Zaudern der EZB, October 5, 19: 43.Google Scholar
  97. UNCTAD (2011). Price Formation in Financialized Commodity Markets: The Role of In formation. New York: UNCTAD.Google Scholar
  98. Unger, Brigitte (2007). “Besser Wirtschaften — Regionale Utopie.” Zeit-Online, September 17.Google Scholar
  99. US GAO (Government Accountability Office) (2004). Federal Debt — Answers to Frequently Asked Questions, Washington August 2004.Google Scholar
  100. Van Suntum, Ulrich (2005). Die unsichtbare Hand — Ökonomisches Denken gestern und heute, 3rd ed. Berlin: Springer.Google Scholar
  101. Walker, Karl (1958). “Das Geld als Kulturfehler.” Telos, 2: 39–43. (Reprint in Karl Walker — Ausgewählte Werke, Gauke, Lütjenburg 1995, pp. 251–255.)Google Scholar
  102. Walker, Karl (1959). Das Geld in der Geschichte. Rudolf Zitzmann Verlag, Lauf.Google Scholar
  103. Weitkamp, Hans (1993). Das Hochmittelalter — ein Geschenk des Geldwesens. HMZ-Verlag, Hilterfingen.Google Scholar
  104. Widmer, Veronika, Lanka, Stefan, & Brix, Susanne (2006). Der Masern-Betrug, Klein-Klein-Verlag, Stuttgart.Google Scholar

Copyright information

© Felix Fuders and Manfred Max-Neef 2014

Authors and Affiliations

  • Felix Fuders
  • Manfred Max-Neef

There are no affiliations available

Personalised recommendations