Just from the fact that you are here to read this blog, I can deduce one thing about your ancestors. Not one of them died before having sex. I can bet that you, like them, have devoted plenty of thought and energy to the topics of sex and death during your life, and that this is something you’d have in common with pretty much all animal life. The two questions “Where did I come from?” and “Where will I go?” are pretty fundamental to anyone’s existence, be they human, toad or earwig.
There’s only one other thing that is anywhere near as central to our existence, and it’s something that seems to be unique to humans. If anything, it causes us more stress, and has more influence on the decisions we make, than either of the more existential concerns. I’m talking about money. Unless you’re phenomenally rich or desperately poor - and perhaps even then - you’ll know of the effect it has on your hopes and fears, your freedoms and your duties. And yet most of us don’t know where it comes from any more than a child knows about where babies come from and where dead people go. Be warned, when you do come to understand, it may shock you just as much as the birds and the bees did.
Where did the money you have come from? Just think about that question for a moment. If you got it from your employers, where do they get it from? The same applies if it came from an inheritance, a game of chance, a rent or a state benefit - your benefactor, bookkeeper, tenant or government all had to get that money from somewhere. Where does the buck stop? Which egg came before all the chickens?
The answer is that someone borrowed it from the bank. When the bank lends you money, it isn’t just giving you something it had been saving in a box for just such an occasion - it is creating something new. This is the best-kept secret of the modern world. It works like this:
In every country*, there is a central bank that stores something it considers to be money. Until the reign of Ronald Reagan, this something was usually reserves of gold and silver. Whatever it is, the bank calls it money. For example, imagine they call it 100 million dollars.
So, the central bank owns $100million. It lends, say, 90% of this $100m to the other, “retail” banks. That’s $90million. The retail banks then lend 90% of the $90m to businesses and people. Now this is where it gets interesting.
Businesses and people now have $81m between them, and they will pass it around buying and selling things, and it will spend some of its time as cash in their wallets and tills. Sooner or later, though, all $81m will end up in their bank accounts. Now, when I have money in the bank, I consider that to be mine. I’m free to withdraw it, and spend it, and earn interest off it, so as far as I’m concerned it hasn’t gone anywhere. This means that when my bank lends 90% of it to other people and businesses, it has created another $72m in addition to the original $81m. And when that $72m gets to people’s bank accounts 90% of it - that is, $63m - gets lent out again, and so on.
So, when the national bank says it has $100m, the amount of money going about the country is actually $90m + $81m + $72m + $63m + …, all of which has been created by bank debt.
In truth, since the system of gold reserves was abandoned in the 1970s it’s even madder than this. Now, instead of precious metals, the central bank only owns $100m if government bonds. This means that the bank has lent $100m it doesn’t really have to the government, and so instead of creating $90m + $81m + $72m + … from $100m of gold, it’s creating $100m + $90m + $81m + … from nothing.
If money is the root of all evil, so is debt the root of all money.
This is why interest rates are so crucial. In deciding what rates to lend money at, the central bank effectively decides how many times the money can be practically re-lent, and thus how much “virtual money” the economy has to play with. However, there is never 0% interest (though individual banks are free to lend at this rate if they find some way to recoup their losses, such as with exploitative credit card debts), and when a bank gives you $100, it is only on the understanding that you will one day give it, say, $105 pounds. Using the hundred, you have to go and fight for those extra five dollars. And so, by lending at interest, the bank has made you ruthless and competitive.
It has also made you short-sighted. If you put money in the bank, it relends it and pays you interest; if you borrow money, it is you who will have to pay interest. The best way to make money is to have money - it has made itself the most valuable of resource. Thus, even if you could borrow $1000 to build a solar panel that will save you $110 a year, it would not be a good financial investment. If you had left the money
in the bank, with 10% interest per annum, then you would have made $100 in the first year, $110 in the second, $111.10 in the third, and so on. And so the $110 you save in electricity a year from now is worth $100 in the bank today. $110 saved decades from now is only worth a few measly pennies in the bank today. This is why, no matter how much you love your trees, you will be under financial pressure to chop them all down and put the lumber money in the bank.
Finally, it’s pretty obvious that compound interest increases the gap between rich and poor. If I put $1 in the bank, and you put in $2, how will our fortunes compare in a year? a decade? a century? No wonder Albert Einstein called it the most powerful force in the Universe.
This sysem has been operating in most of the world since before anyone now alive was born, so it’s easy to assume that this is the natural order of things. Nothing could be further from the truth. Money of some kind has been used for at least 40,000 years. A monetary system based on bank debt has been in operating for around 400 years. Before that, interest on loans was not only rare, it was widely considered to be evil. We now use the word “usury” to describe excessive interest, but it used to mean any interest, and once considered a deadly sin. Judaism banned loans-at-interest except to non-Jews, while Christianity and Islam banned it altogether. The Catholic Church has conveniently forgotten about this (the Cardinal Ratzinger, now Pope, has established that the church’s official line on usury was never changed, but it now lends money at interest to its own priests), but to this day it is against Sharia law, and many UK banks offer “Sharia-mortgages”, with predetermined fees instead of interest (although before you get too scandalised, this represents more of a risk to the bank and so Muslims are charged at higher rates).
I may talk more about Sharia economics another time (remember, Mohammed was essentially a chartered accountant before he became a Prophet in middle age), but the truth is that for most of human history there have been consistent monetary systems without loan-interest. Indeed, the most successful ones - like the one that kept Pharonic Egypt stable and wealthy for 3000 years - have the opposite, “demurrage”, or negative interest, which promotes equality and long-term investment, and to which I and many others now advocate a return on a global scale.
The modern system evolved in 17th century England. For an island nation, bent on conquering the world and with little care for the social and environmental damage it wreaked, it was perfect (look how it made the Empire and the Industrial Revolution a reality). In the 21st century, where a global market crash seems not just increasingly likely but would be increasingly devastating, and when we’re consuming the Earth’s resources as if they burned a hole in our collective pocket, it’s really not “fit for purpose”.
Think on that, next time you buy something on your credit card.
By the way, how come no-one ever posts comments? It’s cold and lonely out here in the wide, open spaces of the internet.

*This applies just as much to the Eurozone and its Central Bank in Munich.