A study of modern economics.
                                                               By Michael Rowbotham

A lucid and original account of where money comes from and why most people and businesses are so heavily in debt. It explodes more myths than any other book this century, yet it’s all about subjects very close to home: mortgages, building societies and banks, agriculture, transport, global poverty, and what’s on the supermarket shelf. The author proposes a new mechanism for the supply of money, creating a supportive financial environment and a decreasing reliance on debt.

                                                                           Summary

Traditionally, the amount of money banks could create and lend into circulation was controlled by governments setting liquidity and reserve/asset ratios for the institutions to meet. By the 1980s, however, the liquidity ratio had become functionally meaningless because, as Rowbotham explains, the banking system had found ways around it by investing in short-term government securities.

The reserve/asset ratio governed the amount of their own money banks were required to set aside as a standby in case large numbers of depositors wanted to withdraw their money simultaneously. A reserve/asset ratio of 10% meant that if a bank made a loan of £10,000,000 it must have £1,000,000 of its own capital in cash or on deposit in the central bank to back it. This ratio has since been replaced by the capital adequacy ratio, which also links a bank’s lending to the amount of its own capital it has. It is set at 8% by international agreement. However, instead of being an effective restriction on banking and money creation, Rowbotham shows in practice it helps perpetuate the problem of escalating debt and forced growth.

In regard to the ownership of money, bankers and economists claim that it is created as a ‘service to the borrower’. Like the myth that banks are merely lending out their depositor’s money, this suggestion is false. Rowbotham shows that bankers create money for themselves, because as borrowers repay the loans which created the money initially, their payments are accounted as assets of the bank.

On monetary policy, the author shows that raising interest rates, the economist’s standard response to inflation, certainly works but in much the same way as a lump-hammer works to carve a chicken. Higher rates do curtail new borrowing, but previous borrowers suffer too by having to pay extra interest. As a result, debt escalates, businesses go bankrupt, homes are repossessed and millions of workers are laid off as the economy sinks into recession.

The term mortgage refers to the medieval ‘death pledge’, a form of borrowing where the owner pledges his house to another ‘until death’. This form of usury was forbidden under Christian law. The book’s title derives from that term and the evidence Rowbotham outlines justifies his use of the similarly grim term: debt slavery. The distinguishing characteristic of a slave he argues is not that he is badly treated. Rather, it is that he has no say over important aspects of his life.

Rowbotham illustrates clearly the central role played by bank credit in economic life and how debt-based money is at the root of destructive economic trends. He shows why most people, businesses and governments get so heavily into debt. Exploring the broad impact of debt he shows the pronounced bias it engenders toward unsustainable growth.

By analysing money in action, the flows and tensions, he enables the reader to see the role and responsibility of the financial system for the nature of modern growth. Forced economic growth is shown to derive from intense competition for money, lack of purchasing power and near total wage dependency. Demonstrating these in action he demolishes the suggestion that growth is responsive to the aggregate desires of people either as consumers or workers. His analysis is revealing and complements Herman Daly’s perspective on decadent growth and Douthwaite’s ‘growth illusion’ which enriches the few, impoverishes the many and endangers the planet.

It is not consumers, but the debt-based financial system which makes a techno-marvel, disposable, wasteful, junk-product ‘consumer’ economy inevitable, he states. The consumer is ‘completely subordinated to the process.’ Industry and consumers are also completely subservient to the regular booms and slumps of the business cycle which he contends is entirely monetary in origin, shape and effect.

Historically both the landed and financial aristocracies have wielded formidable power but Rowbotham does not acknowledge the central role of inequitable land distribution in determining socio-economic evolution. Land still provides the collateral for the largest portion of lending and neither could succeed to the same extent without the partnership of the other. He could perhaps have included landlessness, homelessness, and housing/rent inflation among the factors contributing to forced economic growth.

However, the most appalling effects of our debt-based financial system are, he contends, felt in the Third World. The success of the multinationals he attributes not to their efficiency but to the conditions, advantages and pressures created by the debt-based financial system. Countries are locked in trade warfare, desperate to secure the export revenues to service loans which Rowbotham insists are of a fraudulent nature; ‘The full horror and iniquity of Third World debt is that the under-developed and indebted countries of the world are acting as part of the money supply to developed nations’. He shows how this money is created as debt registered to impoverished nations but bound up in the economies of the wealthy nations.

Rowbotham talks about disarming the financial system, about the ‘temporary tigers’ and the manipulated consensus. He considers in detail the suppressed alternatives put forward by Abraham Lincoln , CH Douglas and others. Lincoln’s Monetary Policy, a literary gem, is included in full. Thus the author more than amply covers the ground before outlining his prescription.

The author concludes by stressing that monetary reform is not primarily a technical matter but a political one. He shows convincingly that bank-produced money is neither a neutral nor accurate medium and that money should be created instead by governments answerable to their peoples to whom the right to issue it belongs.

The Grip of Death: A Study of Modern Money, Debt Slavery, and Destructive Economics Paperback – August 1, 1998
by Michael Rowbotham (Author).