The power to create new money is a profound privilege. Who creates new money is the most critical aspect of a money system, because as noted earlier, this determines who will essentially rule. Money creation has three aspects: who will do the creating, how will it be created, and how will it enter the economy.
In order to be recognizably authentic, some authority must put its stamp on a money token – either literally or figuratively. This stamp of authority often declares who created the money and turns the token into money at the same time. Historically, large, wealthy institutions like churches and governments or individuals of enormous wealth provide this authority and create new money.
But who gives the stamp of authenticity does not necessarily need to be who actually creates new money and puts it into service. For example, today the US Government gives the stamp of authenticity, and declares Federal Reserve Notes will be legal tender in our nation. Our government provides the trustworthiness of our money by guaranteeing it is backed by the full faith, credit and resources of our commonwealth, and by declaring it will always take this money in payment for taxes. But our government does not create the new money; currently in the US, new money is created by the private banking sector (Chapter 5). Be careful of the phrase, to issue money. Some economists, including the Modern Monetary Theorists use issue in a way that confuses two distinct functions: guarantee-authenticity- trustworthiness and the actual creation of money. They speak of the US Government issuing our currency, when it does not create it; it only authorizes it as legal tender and guarantees it.8
When a democratic republic – a government of, by and for the people chooses a money system that gives the power to create new money to private bankers, they hand off the power of rule to the money creators. The private bankers will be the ones deciding what the nation’s priorities will be, what direction new development will take, who benefits, and who gets left out. Giving away this power is, in effect, giving away our right to citizen rule. So, THIS is the critical question, because no matter what the system of governance is – whether dictatorship or democracy – whoever has the power to create new money and enter it into the economy will rule, perhaps not overtly or officially, but effectively.
Whoever has the power to create new money and enter it into the economy effectively rules.