Dear Gargji, I will be grateful if you could offer this outline of ideas on why and how commercial banks must be prohibited from creating new money and how and why the RBI must be empowered to create money and give it to states and the centre debt-free to spend into circulation. Thanks, Anandi,
Suggested financial reform to unleash massive spending for agriculture and forestry and renewable energy There is a grave danger to Indians from the April 1st changes which allow Foreign Direct Investment in agriculture. Pressure on land is increasing and violence is constantly erupting. Instead we should urgently examine money reform in order to unleash massive new spending in rural areas; and we should propose a draft bill on the same to Parliament. The conflict of the public with the lending-as-the-means-of-bringing-money-into-circulation bankers is best illustrated with a village aggressive (peaceful!) mutual society. Such a village enterprise is termed aggressive because it has dozens of ways of making a half crore Rupee investment produce an additional two crores of Rupees every year through the scientific use of land and application of our labour for the production of food crops and food products for the market. Thus it can return the investment aggressively to its members. A gram sabha or town ward agrressive mutual society enterprise is inherently hugely productive thanks to the fertility of the soil and its interaction with the environment. But the protection of the accumulation of these profits / surpluses has been an enormous problem as kings and colonial masters have taxed this wealth for their own aggrandisement. Ambedkar thought that by making agriculture a state subject he would protect it from taxation by the hegemonic centre. But all this did was consign agriculture and forests to neglect and worse as the states themselves came under the thumb of the centre and eschewed the challenge of engaging in autonomous development. So the overarching conflict is between the lending-as-the-means-of-bringing-money-into-circulation bankers-cum-business-as-usual wallahs, and those who are seeking ways of helping mutual societies protect their wealth in order to apply it for the economic development of villages and towns. *We* are arguing that the wealth we generate shall not flow out of the village or neighbourhood except by choice. What *they* say is, we need more Foreign Direct Investment in agriculture and forests because we have a shortage of capital for development. What *we* say is, there shall be trade protection at national level to prevent FDI inflow, and taxation and excise duties to prevent outflow of capital accumulated in India. And we shall prohibit commercial banks from creating money and instead empower the Reserve Bank of India to give money to states and the centre to spend money into circulation. What *they* say is this cannot be done unilaterally. What *we* say is, 17% of the world’s population has no alternative but to abandon hackneyed notions if they are hindering the peaceful evolution of prosperity in India in the context of ecological and social limits to unequal and unsustainable forms of economic growth. By prohibiting commercial banks from creating money we achieve several things. First of all, we avoid having to pay for money. This singularly idiotic and inegalitarian notion has its historic origins in the nation state system and is now blocking equitable access to trade and enterprise. If I have to borrow, I must provide guarantees and securities of various kinds, I need to provide part equity, and I need to be willing to share my profits with these outsiders whose sole claim to my money is that they happen to be a bank with a right to lend money and charge interest. Government of India never questioned the economic arrangements in the developed nations that the labourer and the land that creates the wealth shall not be absolutely and solely entitled to the benefit of it. They never asked what the purpose of Ambedkar’s constitutional provision for agriculture as a state subject was. They accepted the perverse incentives and compulsions of the present internationally linked money system to shape our development model, until today India is more unequal, with more starving children and adults than at any time in its history. The earliest of contributors to the theory of money are “Aristotle (350 BC). Marco Polo (circa 1299), Francis Bacon (1601), Benjamin Franklin (1729), three American presidents - Jefferson (1813), Jackson (1832) and Lincoln (1865) - Ruskin (1860), William Morris (1891), Keynes (1933), Irving Fisher (1935), J.K. Galbraith (1954), George Soros (1995) and a fascinating line-up of sixty others from the 18th to 21st centuries.” “The damage of continuing to allow commercial banks, existing and new, to profit from issuing Rupees as profit- earning loans (i.e. debts) to bank customers is enormous. There are overwhelming social, economic and political arguments for having money created by an agency of the state and issued debt-free to the government to spend into circulation. As the power of national and international banking and finance becomes more and more dominant political democracy is under threat. The mainstream money system must be transformed. Thus the Reserve Bank of India (RBI) shall be properly reintegrated with the Finance Ministry. The RBI shall issue debt-free money to the states and the Centre to spend into circulation. Thus we shall remove the constraints on Union and state governments which forces states and Unions to borrow rather than spend thus constraining spending and casuing impoverishment.” [Ref 1] Secondly, we can manage money much much more easily under the new system of money, as we have taxation as a powerful weapon in our armoury to control inflation. To repeat: the current borrowing paradigm assumes that money is brought into circulation by banks – it has to be borrowed and repaid by us with interest, for their profit. What we want a system where government prints money into circulation and uses taxation to control inflation. This liberates us from fiscal consolidation, structural adjustment and need for FDI. This spending will stimulate trade by the poor to achieve equality within national ecological limits based on soil/agro and ecological production – there are hundreds of draft action plans - omitted here - for the formation of a gram sabha aggressive mutual societies with very quick returns. The examples all show that even with borrowing we can achieve wonders but the National Bank of Agricultural Development (NABARD) is constrained to 17000 crores per annum – this is absurdly low for the entire country. On the other hand Reliance Industries has accumulated 27’000 crore profit and is now eyeing the setting up a commercial bank. The Reserve Bank of India may not give permission, we hope, but nonetheless the fundamental question arises – why must we wait for Reliance to accumulate extracted wealth from the country before we get the money back into circulation by them lending it to us and then making yet more profit? The system is wrong and must be rectified. Our fiscal reform policy is designed to address this. If the investment money for the mutual society was spent by government and not lent, we would have no obligation to pay any earnings out of our local neighbourhood or region at all and it would all be retained for local development. Local taxes can be levied to prevent inflation and create public goods. There is no added advantage to the country to lend rather than borrow. It is a purely ideological and historically determined construct and the disadvantage is that the rich get richer and the poor get poorer. Thus the marginal shift in perspective required to see money in this way will immediately make it clear to all Indians how and why self- reliance is being undermined today and how and why we need to counter it: the present system provides market opportunities for foreign banks with a head start in capital accumulation to offer Foreign Direct Investment as the catch all development model for economic growth. And because we are not in control of our own money as a nation we fall into their trap. Our development becomes their profit. On the other hand the new system provides for Indians to retain the benefit of the ecological productivity of their land and labour. The mistake from Independence onwards was first to consider sterling reserves and not ecology as the economic base, and second, making banks the source of money through lending rather than government being the source of money through printing and minting of autonomous currency for circulation within the country and regulation of inflation through taxation. Even if we accept that this accumulation phase was necessary for setting up the nation state, now this imperative is not there. Can we get out of this mess to make the next phase of development more equitable and sustainable? To understand the urgency of the need for this marginal shift in perspective and this fundamental shift in monetary policy, we must remember that agriculture is a state subject and forests a concurrent subject: decentralisation through states is a long overdue political and economic imperative. We must be prepared to argue that if the Union is not willing to make these basic economic reforms, states must become autonomous enough to have their own currency; the constitution must be revised to make currency a concurrent subject. One way or the other this marginal shift in perspective and this fundamental shift in policy will allow us to create enough money for our national sustainable development plan to release the massive potential of land and labour to keep up with population growth. FDI in agriculture and forests is not a solution, for obvious reasons, and we must also campaign to get this reversed. Not only the poor, all of us are the natural constituency for these reforms. We the unemployed are finding it impossible to secure borrowing due to restrictions, requirement of guarantees, directors security requirements etc etc. Thus the time of the borrowing and lending paradigm is over. The time of spending and retaining money in the country and in the village and town ward for development has come. ------ References [1] Slightly rephrased for Indian situation from Big Change - James Robertson looks forward to a money system transformed - Review of The Money Changers: currency reform from Aristotle to e-cash by David Boyle (Earthscan, London, 2002) - £17.95. Resurgence magazine (Nov/Dec 2003), More recommended reading is at James Robertson's website and Richard Douthwaite's at Feasta, including his book “the ecology of money”, as well as the website on “positive money” where a draft act to make these changes has been proposed for the UK. Link: http://thegreenpartyofindia.org.in/profile/AnandiSharan886 -- >>support our public sector: use phone number portability to migrate to BSNL<< ---- Anandi Sharan 32/2 Kempapura Road Hebbal Bangalore 560024 (m) 8762555456 (tel) 08023624546
